Government Market Intervention
Why do Governments Intervene in a Market?
Governments enter markets in order to correct market failure as well as improve economic welfare and overall performance.
There are three main reasons why governments intervene in a market.
To correct market failure: Governments can correct this inefficiency to eliminate the deadweight loss produced. However, intervention may not always be successful and can lead to failure if it is not correcting an existing inefficiency.
To create equity: A more fair economy may increase efficiency.
The need for revenue: Government spending needs to be funded through taxes. When governments impose these fees, it may correct an existing inefficiency, however, taxes may also cause market failure - making them controversial.
How Governments Correct Market Failure
The policies governments use to correct market failure include:
Property Rights/Private and Public Partnerships