The impact of government intervention (3.6.2)

Question 1

What are the desired outcomes of government intervention?

Answer 1

1. Prices to be affordable and stable
2. Profit of firms to be enough to keep in industry (Normal profit)
3. Reducing wastage or resources to develop increased competition to make more efficient
4. Ensuring products are fit for purpose and contribute to better standard of living so are of good quality
5. Wider choice to improve standard of living and increase GDP

Question 2

Why is government intervention not always effective?

Answer 2

1. Regulatory capture-Occurs when firms influence regulators to change their decisions/policies to align more with the interests of the firms
2. Asymmetric information- Governments don’t always have full and relevant info or don’t understand the market they are trying to regulate so can cause government failure