Government Intervention In Markets

Reasons For Government Intervention In Markets:

In a free market, scarce resources are allocated through the price mechanism.

The main reasons for Policy Intervention are:
-To correct for instances of market failure
-To achieve a more equitable distribution of income and wealth
-To improve the performance of the UK economy both domestically and on the international front.

Forms Of Government Intervention:

Government legislation and regulation
-Parliament an pass laws such as non sale of alcohol and cigarettes to under 18's.

Direct Provision Of Goods And Services
-because of privatisation, the state sector is much smaller than it was before 1980

Financial Intervention:

-Indirect taxes can be used to raise the price of a demerit good, thus reducing the demand for the good.
-A subsidy to consumers, will lower the price of demerit goods such as allowances for students to further their education.
-Tax relief- the government may offer tax relief to help new businesses take off, and to encourage entrepeneurship.
-changes in taxes and/or welfare, can change how much a class is encouraged to go out and work.

Fat Tax:

The government is thinking of introducing a fat tax. This form of taxation is targeted at those whose diets rely heavily on fast food and foods that are zero in nutritional value. As a result of these bad foods, there are over 3,000 fatal heart attacks and strokes every year. This will make these foods more expensive to buy, and will hopefully turn those with less economic resources to healthier alternatives.

Government intervention to close the information gap:

-Compulsory labelling on cigarette packaging with health warnings with the intention of reducing levels of smokers.
-Improved nutritional information for foods to counter the risks of growing obesity.
-Anti speeding television campaign's to show people that their speeding can not only hurt them and their family, but will also hurt the people of that community and who they potentially could hit.
-Campaigns stating the danger's of addictions, and how they can overcome these addictions. Information is provided of clinics that specially help these people.

Pollution Permits:
Pollution permits are sold to firms by the government allowing them to pollute up to a certain level before their emissions become harmful to the planet.
Using an indirect tax to correct negative externalities

Using a Subsidy to correct positive externalities




Minimum prices are the opposite of maximum prices
Possibility of Government failure:Even with good intentions, a government will rarely correctly apply their policies.
Government market failure can often be caused by a governments selfishness, and self interest. A government may sacrifice the good of the people in the selfish attempt to get re-elected. A Prime example of one of these politicians is Tony Blair, who did manage to get his party re-elected, and caused huge social and economical problems to Britain in the process.
CAU-The common agricultural policy is a system within the EU, which is in place to protect the farming sector. Its intentions are:-The stabilisation of agricultural markets-the guarantee of regular supplies-an increase in agricultural productivity and efficiency-maintaining reasonable consumer prices-maintaining a reasonable standard of living for the farming community.
Law Of Unintended Consequences:-When the actions of consumers, producers and governments have effects that are unanticipated.
Inflation:-A persistent increase in the level of prices.

Maximum Prices are ceilings that a government can set within a market stating how much a firm can sell their good or service for. The government put this in place in the attempt to prevent the market prices as a whole from rising to a certain level