Government intervention in markets

Question 1

How does the existence of market failure provide an argument for government intervention in markets?

Answer 1

Market failure justifies government intervention to correct inefficiencies, promote equity, and ensure the provision of public goods.

Question 2

How do governments influence the allocation of resources through public expenditure, taxation, and regulation?

Answer 2

Governments use public expenditure to provide public goods, taxation to redistribute income and discourage negative externalities, and regulation to correct market failures and protect consumers.