Discuss whether government intervention always improves the operation of the market

Introduction

Around the world, governments, mostly intervenes in the market in order to accomplish their policy objectives. The government’s policy objectives or goals could be related to economics, ranging from stabilization of prices, export promoting, encourage equal distributions for income and commodity protection. The examples as per above proves that government intervention is not only limited to economic effects also influences the society. There are two (2) types of usually regulated government interventions, which are automatic and discretionary. Automatic can ale defined as intervention which is based on rules and regulations. On the other side, government interventions which are discretionary mostly targets stopping, suspension or limitation of a certain contract market.

Apart from that, most of the government’s intervention happens when the market affects future markets or total cash widely. Some examples of interventions are controlling of prices, direct buying of buffer stocks, duties, embargoes, quotas as well as policy implementations that impacts prices.

An early review of government market interventions shows that discretionary based interventions usually fails in accomplishing targeted policy objective compared to interventions based on rules as the latter proves to be more successful in a market economy. At the same time, discretionary interventions gives results that are undesired that could be quite damaging and high cost to the government. The harmfulness in this aspect can be defined as total impact on those involved in either marketing or producing commodities.

Government Intervention Worries

A government’s worry on the assumption and inflations rates of the market is not quite unusual among th...

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.... In such cases, the supply bend will move vertically by the careful measure of the charged tax.

In this way, if the government charged a RM1 tax on every pack of smokes, and the smoke merchants need to pass this charge on to the purchasers, then the supply bend will move upwards by RM1. (Note that the RM1 movement is the vertical separation between the pre-tax and post tax bends). The net effect is that for any value, the stores will offer fewer packs of cigarettes, to make up for the additional expense of the charge. As a result, if customers need to administer their past levels of utilization, cigarettes might now require RM1 more for every pack. Then again, the new harmony indicates that costs will be in the middle of p and (p+1), and the new amount will be less than the introductory amount. We can perceive how this deals with the diagram underneath.