Study Booster-Why Government intervene in Markets

GOVERNMENT INTERVENTION AND DISEQUILIBRIUM


WHY GOVERNMENTS INTERVENE IN MARKETS


Governments intervene in markets when they inefficiently allocate resources.



LEARNING OBJECTIVE


Identify reasons why the government might choose to intervene in markets.



KEY POINTS


• The government tries to combat market inequities through regulation,
taxation, and subsidies.


• Governments may also intervene in markets to promote general
economic fairness.


• Maximizing social welfare is one of the most common and best
understood reasons for government intervention. Examples of this
include breaking up monopolies and regulating negative externalities
like pollution.


• Governments may sometimes intervene in markets to promote other
goals, such as national unity and advanceme nt.