2.7 Government Intervention in Markets

Question 1

When do governments have to intervene?

Answer 1

when a market is unable to achieve socially desirable outcomes, resulting in reduced efficiency, environmental sustainability and equity

Question 2

What issue does market failure lead to

Answer 2

allocative inefficiency resulting in welfare loss

Question 3

what is market failure

Answer 3

when the markets fail to allocate resources efficiently, resulting in a suboptimal level of production and consumption

Question 4

Why do government intervene in markets

Answer 4

to compensate for the inability of markets to carry out all socially desirable economic activities effectively

Question 5

earn government revenue

Question 6

provide support to firms

Question 7

provide support to household on low incomes

Question 8

influence levels of production

Question 9

influence levels of consumption

Question 10

correct market failure

Question 11

redistribute income to promote equity and equality