From the 1.4 - Government
specification... Intervention
, Market failure is a situation
where the free market
mechanism does not lead to
Recap: an optimal/efficient allocation
of resources and the needs and
Market wants of societies are
not met. As a result, too much
Failure or too little of a product can be
produced, leading to a
net welfare loss (society is
worse off).
, Government intervention in
markets
In a free market system, governments believe that markets themselves should be able to a
scarce resources and allow market forces of supply and demand to set the prices and the
subsequent quantity produced and consumed.
However, markets sometimes fail to allocate societies scarce resources effectively (market
requiring governments to intervene in order to allocate resources efficiently (including tack
negative externalities), in order to tackle the basic economic problem.
This can take the form of:
• Indirect taxes
• Subsidies
• Maximum and minimum prices
• Pollution Permits
• State provision of public goods
• Provision of Information
• Regulation
specification... Intervention
, Market failure is a situation
where the free market
mechanism does not lead to
Recap: an optimal/efficient allocation
of resources and the needs and
Market wants of societies are
not met. As a result, too much
Failure or too little of a product can be
produced, leading to a
net welfare loss (society is
worse off).
, Government intervention in
markets
In a free market system, governments believe that markets themselves should be able to a
scarce resources and allow market forces of supply and demand to set the prices and the
subsequent quantity produced and consumed.
However, markets sometimes fail to allocate societies scarce resources effectively (market
requiring governments to intervene in order to allocate resources efficiently (including tack
negative externalities), in order to tackle the basic economic problem.
This can take the form of:
• Indirect taxes
• Subsidies
• Maximum and minimum prices
• Pollution Permits
• State provision of public goods
• Provision of Information
• Regulation
