Question

Which of the following actions would be taken by a government that supports laissez-faire capitalism?

A. A governor approves a law removing taxes that had previously been applied to all goods shipped into her state from neighboring states.
B. A national legislature approves plans for a government-controlled power plant that will provide cheap electricity for its poorest regions.
C. A state legislature approves a plan to prevent businesses from leaving the state by requiring them to pay large fines if they choose to move to another state.
D. A president supports a law that would protect steel manufacturers by limiting the amount of foreign steel the country could import.

Answer 1

A. Laissez-Faire capitalism is the separation of economy and state. By removing these taxes, the theoretical governor takes away the economic obligation of the tax from the people.

Answer 2

The correct answer is: "A governor approves a law removing taxes that had previously been applied to all goods shipped into her state from neighboring states."

A laisez-faire economic system promotes the free functioning of markets with minimum goverment interventionism. This doctrine supports that the interactions of economic agents in the markets, would produce the most efficent outcomes, as long as these are not externally influenced.

In option A, the governor removes goverment interventionism that was conducted through taxes, therefore it constitutes an step for building a laissez-faire sytem.

Options B-C, describe measures which increase government interventionism in the economy, conducted through government-controlled plants, fines and quotas on imports, respectively.