Solutions To Maket Failure

Question 1

What are the two strategies that can be used

Answer 1

Using the price mechanism or legislation and force

Question 2

How can the price mechanism be used

Answer 2

The first strategy is to implement policies that change the behaviour of consumers and producers by using the price mechanism. For example, this could mean increasing the price of ‘harmful’ products, through taxation, and providing subsidies for the ‘beneficial’ products. In this way, behaviour is changed through financial incentives, much the same way that markets work to allocate resources.

Question 3

How can legislation and force be used

Answer 3

The second strategy is to use the force of the law to change behaviour. For example, by banning cars from city centers, or having a licensing system for the sale of alcohol, or by penalising polluters, the unwanted behaviour may be controlled.

Question 4

In most cases of market failure…

Answer 4

A combination of remedies is most likely to succeed

Question 5

What affects how governments intervene in a mixed economy to influence the allocation of resources

Answer 5

Their objectives as a government