The Role of the Government in a Free-Market Economy Market Imperfections • Information o In theory, the free-market system assumes that buyers and sellers have correct and adequate information. This is not true, the information is not always readily available and sometimes it is false information. Advertising is supposed to help fill this gap; it provides the consumers with information, but it doesn’t completely close the gap because in many cases advertising is meant to persuade rather than inform. Government has intervened to control the information available to customers and suppliers. Misleading advertising is illegal and the government regulates certain standards. Information is also inadequate in the labour market; the government intervenes through the Human Resource Centers of Canada. • Competition o If the market system is working than new firms will be established in industries that are profitable, resulting competition will improve the quality and price of the product. Competition may be restricted by the
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