What is laissez faire economics?

• In a free market system, governments take the view that markets are best suited to allocating scarce resources and allow the market forces of supply and demand to set prices.
• The role of the government is to protect property rights, uphold the rule of law and maintain the value of the currency.
• Competitive markets often deliver improvements in allocative, productive and dynamic efficiency
• But there are occasions when they fail – providing a case for intervention.

What are the main reasons for government intervention in markets?

The main reasons for policy intervention by the government are:

1. To correct for market failures
2. To achieve a more equitable distribution of income and wealth
3. To improve the performance of the economy

Evaluating government intervention in markets

Revision presentation on indirect taxes as a form of government intervention

Revision presentation on subsidies as a form of government intervention

Revision presentation on maximum prices

Summary - evaluating government intervention in markets

• How significant is the market failure? (consequences)
• Can the market / price mechanism find some solutions?
• What are the likely consequences of not intervening?
• How effective is an intervention? (i.e. consider alternatives)
• Who are the winners / losers from an intervention?
• Consider the potential for one or more government failures
• Which works best – market-based or regulatory (“command and control”) approaches?
• What impact might behavioural interventions have?