Analysing and Evaluating Government Intervention in Markets
- Levels: AS, A Level, IB
- Exam boards: AQA, Edexcel, OCR, IB, Eduqas, WJEC
This study note provides an overview of the different forms of government intervention in markets
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:
- To correct for market failures
- To achieve a more equitable distribution of income and wealth
- To improve the performance of the economy
| Type of Market Failure | Consequence of Market Failure | Example of Government Intervention |
| Factor immobility | Structural unemployment | State investment in education and training |
| Public goods | Failure of market to provide pure public goods, free rider problem | Government funded public goods for collective consumption |
| Demerit goods | Over consumption of products with negative externalities | Information campaigns, minimum age for consumption |
| Merit goods | Under consumption of products with positive externalities | Subsidies, information on private benefits |
| Imperfect information | Damaging consequences for consumers from poor choices | Statutory information / labeling |
| High relative poverty | Low income families suffer social exclusion, negative externalities | Taxation and welfare to redistribute income and wealth |
| Monopoly power in a market | Higher prices for consumers causes loss of allocative efficiency | Competition policy, measures to encourage new firms into a market |
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?
Subscribe to email updates from tutor2u Economics
Join 1000s of fellow Economics teachers and students all getting the tutor2u Economics team's latest resources and support delivered fresh in their inbox every morning.
You can also follow @tutor2uEconomics on Twitter, subscribe to our YouTube channel, or join our popular Facebook Groups.
Job board
Temporary Teacher of Mathematics
Frensham Heights School, Nr Farnham, Surrey
- Economics
- Study notes
- Market Failure
- Government Intervention
- Subsidies
- Maximum price
- Indirect Tax
- Direct Taxes
- Minimum price
Geoff Riley
Geoff Riley FRSA has been teaching Economics for thirty years. He has over twenty years experience as Head of Economics at leading schools. He writes extensively and is a contributor and presenter on CPD conferences in the UK and overseas.
Related Collections
You might also like
From the Blog
More Study notes
-
Essential A Level Economics in Year 1
This course is designed to support non-specialist, inexperienced or newly-qualified teachers of A Level Economics.
-
WOW! Economics 2018/19
It's back! WOW! Economics 2018/19 features a brand new collection of teaching & learning resources, approaches and inspiration for ALL Economics teachers!
Popular Content
-
AQA A Level Economics Revision Flashcards - Markets and Market FailureAQA A Level Economics Revision Flashcards - Markets and Market Failure
- SKU: 02-4130-30071-03
-
Printed Edition
-
Student personal license
- £10.00 (+VAT)
Added to your Shopping Cart!
AQA A Level Economics Revision Flashcards - Markets and Market Failure
- SKU: 02-4130-30071-03
-
Printed Edition
- £10.00 (+VAT)
-
Behavioural Economics Example Essays (Volume 1) for A Level EconomicsBehavioural Economics Example Essays (Volume 1) for A Level Economics
- SKU: 02-4130-30038-03
-
Printed Edition
-
Student personal license
- £5.00
Added to your Shopping Cart!
Behavioural Economics Example Essays (Volume 1) for A Level Economics
- SKU: 02-4130-30038-03
-
Printed Edition
- £5.00
Teaching Vacancies
-
Economics Contributor
tutor2u, On-line
-
Student Revision Workshops Contributor
tutor2u, Home based
-
Temporary Teacher of Mathematics
Frensham Heights School, Nr Farnham, Surrey
- Browse all jobs ›
Advertise your vacancies with tutor2u
Much cheaper & more effective than TES or the Guardian. Reach the audience you really want to apply for your teaching vacancy by posting directly to our website and related social media audiences.