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Government interventions in the market place
Government interventions in the market place
Impact of market failures
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In micro-economics market failure is characterized by resource misallocation and subsequent Pareto inefficiency. Just as the invisible hand falters, so is the case that the unregulated markets are incapable of solving all economic problems. In laissez-faire economy, market models mainly monopolistic, perfect competition and oligopoly are expected to efficiently allocate resources for the “welfare benefit” of the society. However individualistic and selfish private interests divert the public benefits thereby prompting government intervention to correct the imperfection which may lead to disastrous economic impact. Although corrective intervention policies by government may not necessarily address the underlying imperfection induced by private sector inefficiency, it still becomes a necessary remedy to benefit the wider public if private entities are not allocating efficiency. Furthermore, as the largest contributor of the Gross Domestic Product, poor and untimely corrective measures could signal the failure of both the private and public interests. Effectiveness of the policies and mechanisms designed by the state in market intervention are fundamental in correcting any perceived market failure. Intervention however does not guarantee effective remedies expected by the economy and could lead to deeper market failures if the regulations “crowd out” the private sector but is the viable approach to address market failure.
Market Failure Causes
In analysis of market failure, a distinction should be drawn between partial and complete market failures. While the later implies a functional market with ineffective function the former describes a complete non-functional market with inability to supply the market with required goods o...
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...nment intervention in market economies always works effectively. However, given that its role in and responsibility in ensuring the welfare of its citizens is inherently, intervention, support, collaboration and corporation is always necessary in proper management and functioning of economic markets.
Works Cited
Works Cited
Rosen, Harvey. Public Finance, 5th edition. New York: Mc Graw Hill Book Co. 2005.Print
Stiglitz, Joseph. Economics of the Public Sector, 3rd edition. New York: Norton & Co., 2000.Print
Tullock, Gordon. “Non-prisoner’s Dilemma.” Journal of Economic Behavior and
Organization, 2005(2): 23-45.
Winston, Clifford. Government Failure versus Market Failure Microeconomics Policy Research and Government Performance. United States: Brookings Institution Press.2006.Print
Kraft, Michael E., and Scott R. Furlong. 2013. Public policy: Politics, analysis, and alternatives, Anonymous Anonymous , ed. Charisse Kiino . 4th ed. Thousand Oaks, California: SAGE Publications.
The emergence of this kind of economy is mainly due to weaknesses in the market
Wheelan, C. (2011). Introduction to Public Policy (1st ed.). United States: W.W. Nortion & Company, INC. (Original work published 2011).
The current issues that have been created by the market have trapped our political system in a never-ending cycle that has no solution but remains salient. There is constant argument as to the right way to handle the market, the appropriate regulatory measures, and what steps should be taken to protect those that fail to be competitive in the market. As the ideological spectrum splits on the issue and refuses to come to a meaningful compromise, it gets trapped in the policy cycle and in turn traps the cycle. Other issues fail to be handled as officials drag the market into every issue area and forum as a tool to direct and control the discussion. Charles Lindblom sees this as an issue that any society that allows the market to control government will face from the outset of his work.
To Summarize, Microeconomics illustrates which cause of departure from the economic efficiencies and the result of decline and social welfare at its maximum potential even though the efficiency of production, efficiency of production among the consumers, and the allocation economic efficiency are included in economic efficiency. Even though economic efficiency shows us the way of how the economy works, it should be noted that microeconomics does not study the economy as a whole but a small part and inter-relationships of every
Positive and negative externalities have major effects on the marketplace. Externalities, positive and negative, can be seen every day but, most people don’t consider their implications. This diagnostic question shall address some externalities that can be seen in the New River Valley or Allegheny County area and how various market failures exist.
In time of economic crisis the government has a choice to cut spending or increase spending for public goods and services. “In 2009, Congress passed the American Recovery and Rein- vestment Act, which authorized $787 billion in spending to promote job growth and bolster economic activity”(Stratmann/Okolski 3). John Maynard Keynes, an economist of 20th century, suggest that the government should run a deficit if it will create jobs and increase capital gain. This theory support the current stimulus package that has been introduce during President Obama’s term. Although the flaw with this concept is that it makes the assumption the government has done studies and understands which areas needs the funding the most and knows where it will be beneficial, realistically that is not true. “Federal spending is less likely to stimulate growth when it cannot accurately target the projects where it will be most productive” (Stratmann/Okolski 2). This can be seen because political figures will spend money where it directly supports their needs as well. For instance, the political figure would rather spend money to things that will yield a p...
-Hyman, David M. (1990) Public Finance: A Contemporary Application of Theory to Policy, 3rd, Dryden Press: Chicago, IL
This view implies that governments intervene for many reasons, including the redistributional and stablisation functions. While market failure is one reason for intervention, other considerations, including questions of equity and social justice determined the nature and the extent of government intervention. This point was expanded upon by Groenewegen (1990,2) who argued that the extent of market intervention in the supply, distribution and redistibution of goods and services are not dictated by purly political and ideological considerations, other considerations may play a role including the failure of the market in certain instances to ensure efficient, equiable allocation of resources.
Today, more than ever, there is great debate over politics and which economic system works the best. How needs and wants should be allocated, and who should do the allocating, is one of the most highly debated topics in our current society. Be it communist dictators defending a command economy, free market conservatives defending a market economy, or European liberals defending socialism, everyone has an opinion. While all systems have flaws and merits, it must be decided which system is the best for all citizens. When looking at the financial well being of all citizens, it is clear that market economies fall short on ensuring that the basic needs of all citizens are met.
Over all the appropriate role of government has always been an argument discussing whether it is actually helping our economy or is the government gaining too much power over the markets. However the economy could not prosper without the actions imposed to assist in diffusing the power over the markets and regulating as well as enforcing the law in order for things to done in a beneficial way to both the consumers and the markets.
We all saw the effects of government power on a communist Germany. And what happens when perfect competition becomes imperfect? You have two polar opposite ends of the spectrum and the gray somewhere in the middle. So when should the government intervene? In the presence of market failures, government intervention may be necessary (McGraw-Hill, 2016). Markets do not always produce the right combination of output (McGraw-Hill, 2016). A market failure is an imperfection in the market mechanism that prevents optimal outcomes (McGraw-Hill, 2016). In the Journal of International Business and Economics article Market Efficiency and Government Intervention Revisited: What Do recent Evidence Tell Us? According to Stiglitz and Brown the following reasons could lead to market failure; Incomplete markets: for a market to be efficient it has to be complete, a complete market would provide all goods and services for which the cost of production is less than the price customers are willing to pay. Information failures: vagueness in the market for some goods such as technology, are difficult to manage, here information is the main commodity to be traded, the seller cannot allow the buyer to have full knowledge of the goods because if he does, he would have given the commodity to the buyer without being paid, the buyer has no way to know about the quality of the goods and
The Concentration of Economic Power in the Public Sector Undermines the Foundations of Economic Growth
Rabin, J. (2003). Encyclopedia of public administration and public policy: K-Z. United States: CRC press.
Government intervention occurs when markets are not working optimally i.e. there is a Pareto sub-optimal allocation of resources in a market/industry. In simple terms, the market may not always allocate scarce resources efficiently in a way that achieves the highest total social welfare.