Grade 10B_IGCSE
" Discuss whether government intervention is always successful in correcting market failure."
Time Duration for submitting the Article is
Aug 5th to August 11th, 2013
Write your answer here in 500 Words.
"Marks allocation will be in accordance to the Rubrics"
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Market economy is an economy that runs by demand and supply and price of goods and services. Free market at hand are controlled fully by supply and demand liberally without government intervention. Leaving the market to fix itself without the help of the government. None of the nations today even USA that apply total free market opposed to mixed economy where there is a government intervention. Government objective is to correct market failure. Market failure is the disability by the market to allocate goods and services effectively. The aftermath is not Pareto optimal, where its impossible to make one individual better without making other worse. The causes of market failure varies from lack of information for the consumer and to monopoly of business.
ReplyDeleteTo help correcting market failure government arbitrate the free market using their policies, Fiscal and Regulation by using taxation and passing laws respectively. Government impose higher indirect tax to de-merit goods such as cigarettes and alcohol to discourage people from buying it due to the high social cost it brings. In addition, government provide subsidies to merit goods as well to help in fixing market failure to boost production of products with social benefits, such as education. Aside from fiscal approaches, government impose new regulation on goods that brings negative externalities. For example, completely banning dangerous drugs and prevent bars to open before 12AM to avoid children being influenced by those bad activities. With these approaches government can help in correcting market failure because they helps in guiding allocating goods and services as well as protecting their people.
On the other hand, government intervention doesn’t always work. Theoretically government policies may correct market failure without a hassle. Simply just raising tax and making new regulation, but the economy doesn’t work that way. Even if government impose those policies, people do still consume de-merit goods and the worst case scenario is that they will find another way to avoid government and worsening the case. It only improves by a fraction of percentage with government intervention. Other solid example for a failed government intervention is the 1929 Great Depression. The Great Depression was cause by US government monetary contraction policy of reducing money supply in the market. It rose unemployment by more that 600% in the US itself. It does not only affect the US but also other nations such as the European country. As we can see here government intervention is not always a good thing.
In contrast, having government intervention is better albeit the result is only a subtle improvement or worsens but it is better than the government does not do anything and just letting the market fix itself. The government knows what they are doing and foresee their act carefully. Government may also helps in encouraging merit goods as they have the dedication and budget to do so and with a strategic law the people may obey to the law. With increased taxation as well, this results in higher income for the government and means more budget to allocate for the country such as pensions. Ferdin
Most of firms like to produce goods and services to gain profit for them, especially private sector. Private sector is likely to produce goods and put their waste to river which is harmful for animal and also human lives there. People around the river can’t take water and use for their daily life, in this case market failure happen because the firms can’t use the resources efficiently. Most of it happens for the industry near river and also villages which also make villagers complain about it. And also government can intervene to protect environment from harmful materials.
ReplyDeleteVillagers will complain to government to protect their rights so there will be government intervention to encourage villagers and local people. Government can give laws and regulation to protect river there, so there will be waste product left there. This also helps for the firms to produce goods efficiently and use natural resources wisely. Moreover government can give taxation to make the firms think twice before produce goods, taxation will happen to make sure the firms protect their environment for example green taxes. This intervention helps local people to be healthy and make no market failure so it will be benefit for local people and also firms. That’s make government can give subsidies to make the price of goods lower because high price will make less demand and reduce firms profit . Firms will be protected and environment as well which make less protest from villagers around there.
On the other hand, these intervene not always successful due to some condition. When government give laws and regulation, this will make less number of goods is produced because the law make firm to work more efficient and not reach market failure. This situation will reduce number of employees and rising number of unemployment. Government aims will not be reached if number of employment decrease. Moreover, giving subsidy to encourage firms will increase number of government spending, whether for encouraging government can use it more wisely to make an opportunity cost. Government can build infrastructure and also can give education local people so they will be educated and know how to use natural resources wisely. The next generation will use resources efficiently and not create external costs which make market failure.
In conclusion, government intervention will not always successful because it need high budget on it to implement government intervenes. They need to create law and regulation which need cost and also subsidies to encourage firms, the cost will not be few but it need high amount of money to implement it. But it’s also true that with government intervention can help to protect environment and local people around it and it also create a benefit for the natural resources to conserve it for the future. Government intervention is successful because without it, the firm can use the resources arbitrarily which is dangerous for the future. Spend money to subsidies it not create a problem because the protection of environment and also natural resources can help them in future.
Production of goods and services are done by firms (supplier) to satisfy needs and wants of a market. Market are determined by consumers, and supplier; consumers determines the demand; in the other hand, supplier are people which determines the supply of a market. Sometimes firms are not able to satisfy the demand of the consumer (the quantity of the demand is far from the quantity of the supply) due to many things. Market failure might be occurred when firms wasting of its resources. Also it might occurs by giving their employee low paid so the production process not efficient and can’t satisfy the needs and wants. Which means it is bad for the economic due to the allocation of resources in the economy are not efficient and all the opportunity cost of producing more goods are gone. Government may participate to solve the failure of the market that occur in the economy.
ReplyDeleteThere are opportunity cost that need to sacrifice when government are correcting market failure. example, when government are trying to increase the minimum level of wages policy to increase market wages, it might make employers are unable to pay much money to the employees so many employees might be unemployed or employees being redundant are more often occurs in many firms. Instead of increasing the employees income it makes the employees income lower even they lost their income source. In other circumference, government are trying to reduce the waste of resources that firms doing in the economy by giving a maximum level of waste produced in a firm. So that every time the waste level exceed the level of its maximum it will makes the firm get charged of it. But by doing this some firm might use more advance technology which means inflation might occurs and others goods or services might inflates. Some government might use fiscal and monetary policy for affecting market failure. This are disadvantages when government are trying to correct the market failure in the economy.
On the other hand, government might also be succeeded when trying to correct the market failures. Even though there are opportunity cost that needed to be sacrificed by government. The common problem is when a government are trying to increase the minimum level of wages, for an increasement in the market wages, but when they applied the new level the redundant people in the country increase. However the aim of the government has been achieved. also there are chain advantages, one of it is the holiday that is given to the employee due to the are redundant employee which means they are not use much which means more holidays. The other example of government intervention in correcting market failures which also brings advantages to people is when government is giving a maximum waste level and charge to firms which have waste exceed the max waste level in the country. By this policies government can control the pollution produced in the economy, also they can increase the living standard of the population. That are the advantages of government intervention.
In conclusion, market failure is the failure that occur due to the quantity of the demand which cant satisfied the quantity of the supply. While there are opportunity cost which need to sacrifice when the government are interfering to correct market failure which means there are disadvantages of this. Even though there are disadvantages sometimes the opportunity cost which government stand with brings more benefits to the economy. I think that government intervention in correcting the market failure won’t always be success, for it might have opportunity cost that need to sacrifice. In the other hand it might bring more than it should be.
Antony John Gerald
In a mixed economy, the government and the private sector both work together to run and control the economy. The private sectors operates on satisfying the people’s wants whereas the government focuses on the country’s needs and tries to fulfill them. When a problem occurs, sometimes the market alone cannot overcome the problem. Therefore, sometimes the government may intervene in the economy to help the economy itself and protect the people and environment as well.
ReplyDeleteMany government interventions has been successful looking back over the past few decades. For example, the Chinese government has intervened many times in their country’s economy. Their One Child Policy is one of the many successful policies of correcting market failure. During that time, the market in China could not produce enough goods and services for the large amount of population China has. With this policy, the Chinese population growth declined considerably and the level of scarcity declines as well. Education and health care are received by a larger proportion of the population and the Chinese economy starts to grow at a faster rate. The declining population growth also means that less money are needed to help the people and more money could be used on other economic sectors, such as infrastructure. By so, the government supports the economy furthermore and boosts both the economic growth and development. In addition, the decreasing rate of population growth means that the resources at hand are used for less people. Less people start to live in poverty, the average living standards rise and the economy develops. This also allows the Chinese government to reserve some of their resources and save it for the future. As a result, China now has the largest reserve in the whole globe.
However, government interventions can be disastrous as well as successful. Examples could be found all over the world, government taking wrong actions or decisions based on false analysis or lack of understanding of the market, and many else. These wrong actions taken worsen the current market condition in the country and plunge the economy to a dark recession period. The economic condition is influenced by a whole lot of factors. Sometimes looking at just a few of these could camouflage the real problem. Economists or analyst in a developing economy can sometime misjudge the market condition which leads to a false action taken. For example, a country’s exports are too low and their imports are too high. The domestic firms could not yet produce the goods and services demanded and consumers consume imports as a result. The governments then restrict certain imports from entering the country. Some of these imports may be needed by the domestic manufactures to produce the exports. GDP may fell drastically as well as exports, consumer may lack goods and services continuing market failure and the economic growth may be hindered. Apart from that, the market is always unpredictable. This, too, could cause a government intervention to be unsuccessful.
To conclude, government interventions on correcting market failure is not always successful in correcting a market failure. Sometimes, it could also worsen the market condition due to false actions or decisions made due to misjudging of the current market situation or due to the unpredictability of the market itself.
A market is all of the people who wish to exchange any goods or services. A market system however, is a market that relies on the demand and supply for the particular goods or services. In a market system, the products that are to be produced is decided by the firms and the consumers and it changes with the ongoing trend. Whenever the product is popular, demand increases thus increasing the supply. However, in this system the resources are allocated by the private firms, which only produce for the maximum profit. Thus market failure, a term used when the allocation of resources is not effective happens and the government will help this by giving government interventions, which can bring positive and negative things.
ReplyDeleteThe most-known way used by the government to correct the market failure involves raising tax prices and giving subsidies. When the resources are not allocated efficiently, externalities start to show up, being in the form of pollution, scarce of resource, and many more, because resources are used only to make the best profit for the private firms themselves and not think about how much impact they make. So in oder to correct this, the government can give high taxes on resources that are to be used to make products and make expenses high for the firms. That way, private firms are able to hold back for a little bit and not waste too much resources because they want the maximum profit. And then, government can also give subsidies to firms that agree to the government’s conditions such as producing the public goods. This way, more companies are interested on joining in order to gain more money and government recognition. However, the thing about high taxes are that because prices are getting higher, producers and consumers will start to buy from other countries with lower price of products. This encourages the downfall of the domestic economy and increases the amount of imports in the country and worst the activity of illegal economy. And because the domestic firms close down, there will be unemployment and sooner or later products will be in lesser demand because people tend to save more of their income.
Other ways for correcting market failure are for the government to run nationalization. As the private firms only want to create products for the best maximum profit, someone should take over ownership of a few sectors without the aim of making maximum profit, as not all people are rich and able to buy things. Firms surely set their prices high. That’s why the government will take ownership of some sectors that are designed especially for the importance of the people in the country. Laws and regulations should also be posed to decrease externalities. The government can put on laws for maximum number of this and that for each sectors in the company that they’re supposed to obey or if they object, they go to prison. With nationalization however, there is a need for higher government revenue because the goods provided by the government are cheap and needs to be affordable for the poor ones too, especially in MEDCs.
Market failure can be corrected by government interventions. These government interventions are meant for good causes and it helps reduce any externalities in the country. It is successful, but not always. It depends on who is controlling the decisions for this. But for the most part, with proper handling, government interventions will be able to correct market failures.