Government Intervention & Failure

Question 1

Why would governments intervene in a market

Answer 1

a regulatory action taken by the government that interferes with decisions made by individuals, groups + organisations about social and economic matters

Question 2

why might governments intervene

Answer 2

in order to improve the allocation of resources

Question 3

what are the aims of government intervention

Answer 3

stabilising prices, providing farmers with minimum wage, discouraging demerit goods

Question 4

What is the pro-free market viewpoint

Answer 4

government intervention should be limited and the economy is a calm and orderly place that sorts itself out through the market mechanism etc

Question 5

What is the interventionist viewpoint

Answer 5

the markets are uncompetitive and the government know better than the unregulated market forces

Question 6

What would be the governments jobs in a pro-free market

Answer 6

• maintain law and order
• provide public goods + merit goods where the market fails
• create an environment where firms can compete competitively with minimum interference and regulation

Question 7

What is government failure

Answer 7

when the government intervention reduces economic welfare, leading to an allocation of resources that is worse then the free market outcome

Question 8

What are the 4 main types of government failure

Answer 8

• distortion of price signals
• unintended consequences
• excessive administration costs
• information gaps