purely economic institutions. However, political institutions also play a role in allocating society’s scarce

resources, and economists have played an active role, along with other social scientists, in analyzing how such

political institutions work.

Other chapters of this book discuss situations in which market forces can sometimes lead to undesirable

results: monopoly, imperfect competition, and antitrust policy; negative and positive externalities; poverty and

inequality of incomes; failures to provide insurance; and financial markets that may go from boom to bust.

Many of these chapters suggest that the government's economic policies could address these issues.

However, just as markets can face issues and problems that lead to undesirable outcomes, a democratic

system of government can also make mistakes, either by enacting policies that do not benefit society as a
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