Question

Is "fairness" the economic basis for government laws and regulations designed to remedy market failures? If so, why; if not, what is the economic basis?

Short answer

Fairness is not the economic basis of government law or regulation to deal with market failure. Rather, market efficiency is the economic foundation of these regulations.

Step-by-step solution

Defining the marketplace

The marketplace refers to the economic system in which many businesses compete with one another to offer their goods.

Explaining insider trading.

When markets produce inefficient output levels, they frequently fail. The market failure is brought on by the deadweight loss produced in this situation. By controlling the price and output of the relevant producing entities, the government aims to reduce these losses caused by consumer production distortion.

Therefore, "fairness" or equality in the rewards to consumers and producers can never serve as the economic foundation for fixing market failure.

The market's supply and demand factors typically assure market efficiency, which suggests that the market will provide an output level that is socially efficient.

However, when the market is unable to guarantee production and consumption efficiency, the government steps in to control it.

In order to ensure market efficiency, government rules and regulations aim to correct market failures.