Reasons for government interventing the economy

Essay by wl_emilyHigh School, 11th grade May 2004

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The government intervenes the market to correct serious market failures. A market is defined as an organisation that allows buyers and sellers to exchange goods or services. A market should be able to allocate the resources efficiently with competition in both sellers and consumers and consists of choices and quality. It should maximise the satisfactions of both consumers and sellers. But markets may create inequality of opportunity, which the disadvantaged groups are usually lack of skills to work and knowledge and promotes inequality of income. A market may also provide collective goods and services inadequately since the main goal of producers is a self interest wish for a relatively high profit. Consumers are not protected from production faults in a free market. The market mechanism doesn't take into account externalities associated with an economic activity such as pollutions and monopolists may appear and manipulates the market to suits its own intents.

Without the government intervention, the problems above will occur. The government intervenes to ensure the adequate provision of goods and services which the market may not provide if left alone to its own operation. Government intervention is intended to address market failure and market power. The government can influence the types of products produced through their health and safety laws, regulations, anti-pollution laws, subsidies and tariffs. It can also influence the methods of production of goods and services through the infrastructure it provides through the level of taxes and interest rates.

Government intervention is aimed to promote and ensure efficiency of the market. If the price rises above the cost of the good or service this will decrease the amount of the good or service consumers are able to purchase. The government intervenes with regulations such as price controls and taxation to redistribute the higher than normal...