{[ promptMessage ]}

Bookmark it

{[ promptMessage ]}


68-qa-aqaecon1 - Government intervention Explain the term...

Info iconThis preview shows pages 1–3. Sign up to view the full content.

View Full Document Right Arrow Icon
38 Government failure | Government intervention Explain the term free market . In a free market, governments stand back and let the forces of supply and demand determine price and output. There is no direct (eg regulations) or indirect (eg subsidies) government intervention to influence or restrict the behaviour of consumers and producers. This means markets allocate scarce resources. What is government intervention? Government intervention is when the state gets involved in markets and takes action to try to correct market failure and so improve economic efficiency. Why do governments intervene in markets? The state takes action if it believes markets are not delivering allocative or productive efficiency. What is the aim of government intervention? State involvement in markets aims to improve economic efficiency by changing allocation of resources List the main ways by which governments can intervene in markets. The state can use regulation, price signals, better information or direct provision to change resource allocation. Distinguish between market and non-market based government intervention polices Market based policies : the state takes action to affect the conditions of supply or demand, hence price and output. Eg by offering subsidies or providing better information Non-market based policies : the state intervenes directly in markets eg by legally enforced regulations eg smoking bans or direct state provision of products eg NHS Government failure What is government failure? Government failure occurs when state intervention causes an even more inefficient use of resources than that previously achieved in a free market. Why can government failure occur? State action may deepen market failure because of Imperfect information causes an inefficient allocation of resources e.g. if the benefits of the University education overestimated too many places may be supplied: Short-termism : government nearing an election may over-provide public services in an attempt to win votes Regulatory capture : overtime, interaction between government officials and monopolies overly influences regulators may begin to favour the vested interests of producers Evasion : setting higher taxes or strict regulations may encourage some agents to ignore the law. Eg higher taxes on cigarettes encourage illegal importation and black markets Unintended Consequences. Interventions often generate unanticipated, undesirable outcomes eg increasing state pensions can lead to workers saving less for retirement High administration and implementation costs outweigh benefits Reduced incentives : lost profit motive can lead to lower productivity and inefficiency eg from overstaffing
Background image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full Document Right Arrow Icon
| Taxes 39 Taxes What are taxes? Taxes are compulsory charges imposed by the state on individuals and firms.
Background image of page 2
Image of page 3
This is the end of the preview. Sign up to access the rest of the document.

{[ snackBarMessage ]}

Page1 / 8

68-qa-aqaecon1 - Government intervention Explain the term...

This preview shows document pages 1 - 3. Sign up to view the full document.

View Full Document Right Arrow Icon bookmark
Ask a homework question - tutors are online