Some economists argue that the government may affect the overall performance of the economy. Regulations, taxes and government spending can vitalize or stifle economic activity in various sectors of the economy. On one hand, if the government spends more than it collects in tax revenues, deficits can slow the economy. On the other hand, a well-planned road system can increase market efficiency and help improve the economy. The government plays a role in the economy by correcting for market failures and protecting property rights.
Market failures happen when the market has an effect outside the buyers and sellers.
For example, companies that emit pollutants into the air may cause health risks for other people. In response, the government might regulate how much pollutants a company can release. Schools and other basic infrastructure, such as roads and bridges, benefit almost everyone. However, the market may not produce schools and roads since the costs and benefits of such projects are shared across a large number of people. In these cases, the government steps in to provide these needs.