8.9 Government Intervention in Markets

Why do government intervene in Markets

To correct market failures, promote equity, and support macroeconomic goals

What are key methods of government intervention

Taxes, subsides, price controls, regulation, state provision, property rights, pollution permits

What is the role of taxes in government intervention

Taxes are used to increase the cost of demerit to reduce consumption or production, internalising the external cost and correcting market failure

What is the role of subsidies in government intervention

Subsidies are payments from the government to encourage the production of merit goods helping increase their supply or demand

What is state provision

When the government directly provides goods or services, such as healthcare or education, especially when the private market fails to supply them efficiently of equitably

What are potential downsides to intervention

Unintended consequences, inefficiencies, administrative costs, and risk of government failure