Government Intervention

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5 Terms

1
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What are examples of government intervention?

Minimum wage, health & safety, holidays, sick pay.

2
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Market failure

Inability of the market system to allocation resources efficiently

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Why may there be a misallocation of resources?

  • Public goods allow people to consume a good without paying for it e.g. street lighting. Therefore, firms cannot make a profit from it.

  • Positive and negative externalities impact 3rd parties, but are not included in cost of the economic activity.

  • Monopolies can restrict output and raise price, under-producing goods to the market.

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What do businesses gain from government intervention?

  • advice from various support organisations

  • grants (often non-repayable)

  • Legislation used to punish those who do not conform to relevant laws.

  • MP's with jobs that are dedicated to encouraging and supporting trade within economy.

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Example of government intervention - smoking

Rise in cigarette prices due to taxation.

deglamourisation of packaging.

legislation forbidding smoking in public places.