Economics – The allocation of resources - Market failure | e-Consult
The allocation of resources - Market failure (1 questions)
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Arguments for Government Intervention:
- Correcting Market Failure: Government intervention can address situations where the market fails to allocate resources efficiently, leading to improved economic welfare.
- Promoting Social Welfare: Intervention can promote social welfare by addressing externalities, providing public goods, and regulating monopolies.
- Addressing Inequality: Intervention can be used to reduce inequality through policies like progressive taxation and welfare programs.
Arguments Against Government Intervention:
- Information Problems: Governments may lack the information necessary to effectively intervene in markets.
- Bureaucracy and Inefficiency: Government intervention can lead to bureaucracy, inefficiency, and corruption.
- Distortion of Market Signals: Intervention can distort market signals, leading to unintended consequences.
- Reduced Incentives: Intervention can reduce incentives for firms and individuals to innovate and improve efficiency.
Examples:
- Example 1: Pollution Control (Externalities): The government can impose taxes on polluting industries or regulate their emissions to reduce negative externalities. This addresses the market failure caused by the failure to account for the social cost of pollution.
- Example 2: National Health Service (Public Goods): The provision of a National Health Service (NHS) is a government intervention to provide a public good (healthcare) that would be underprovided by the market due to the free-rider problem. This ensures that everyone has access to healthcare, promoting social welfare.