Grade 11BN_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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A market is a place where producers and customers meet to exchange goods and services for money. People who are controlling the market can be the government or the producers themselves. Government can always intervene in the market when it is needed, because the government has the highest status in the market. Except for a free market system, where the government has no obligation or right to intervene in the market. Government interventions usually happen in mixed economies countries, where the votes of producers, consumers and government are equal.
ReplyDeleteAn intervention by the government in mixed economies can be beneficial for the country’s market system. Government intervention can help reduce the competition or monopolies within the market. Monopolies and competitions are often caused by the producers/firms who are having the most shares in the market, or having the highest status in the market. A market is not always in general, it is usually more specified and grouped. For example; a market for primary goods, electronics, food, etc. A monopoly could happen when a firm dominates the market. The firm can set prices high and will still get all the customers because of their dominance. In situations like these government interventions could be useful to reduce the amount of dominance by introducing public sector (government’s) firms into the competition. Other than that, government can also intervene by applying targeted taxes, setting minimum wage rates, setting lower import quotas and tariffs, etc. By setting minimum wage rates, government can help increase employment which can also increase equality between the workers. With low import quotas and tariffs, this can help the local firms to achieve higher customer demands to meet it’s aim. Local firms are also encouraged to export goods and services and this can help the country’s economy to grow.
However, with the government intervention in the market, it can cause new problems to the economy. When the government set high taxes, it could reduce the intensives of people who work or run a business. They might not want to open up a business or work because the direct and indirect taxes are high. The reward from profits or wages are reduced because of the high taxes suggested by the government. Other than that, with laws and regulations made by the government, it can increase production cost of the firms. Which can cause them to reduce their supply of goods and services. Demands will not be satisfied because of this. The misuse of government’s money can also affect the firms and consumers. The money that was actually for public sector organizations might be used for other purposes or even individual purposes of the government like elections. Which can cause the public sector firms to produce less supply of products.
To conclude, a government intervention can be useful or not useful. It’s all according to the situation of the market. The government should also make smart decisions in whether or not they should intervene. When they intervene in a wrong situation or make the wrong step, it could cause new problems to the economy instead of correcting it.
Market failure occurs where the free market mechanism ,the system by which the market forces of demand and supply determine prices and the decisions madye by customers and firms ,fails to achieve economic effieciency .Government intervene not always give advantages to the market and too much intervene by government may can make some problem ,this is the disadvantages and advantages of government intervene to the country :
ReplyDeleteGovernment can intervention to correct market failure with manipulation subsidies ,indirect tax and provision ,subsidies is a direct payment made by government to producers of a goods and services to help seller continue their business that may have problem with money ,indirect taxes is the tax that sale of certain products ,council tax and business rates are charged locally on the ownership of houses and business premises eg :value added tax, for provision government may can help company and seller by labeling on food products so consumer may can feel more comfortable consume the food because there is legal information by government about the food ,so with the government manipulated the tax,provision and the subsidies this can help the market so much and market failure may can resolved by government intervention because with government intervention can push the sale of the product by provision of government , can help company or seller still exist inside the market by giving subsidies also indirect taxes that also benefit for company or seller because indirectly consumers have been pay to company although the company also have to pay to government.
But ,not all government intervention being benefit for market failure, in some developing country many government that corrupted and lend money but give big interest to some company and seller ,which mean this may help the business in the beginning but this also make the profits company or seller become smaller .Beside that government may also setting higher taxes although the revenue is used by government to public expenditure and to developed economic this will make the price of the product higher and this can make consumer consume less which mean the profit that earn by company or seller lower and this can cause market failure . It’s hard to measure the negative externalities is involve social cost and social benefit which social cost is the bad effect that caused by company or seller ,social benefit is benefit or good effect caused by company to society to enjoy without pay for it , so with government intervention it’s may hard to measure negative externalities that made by company .
So, the conclusion is government intervention may can bring benefit for market failure because government may can resolved it but in some condition government intervention can bring more problem and can make market failure more worst ,so this depend with government in take action to resolved market failure that happen in the economy ,if government take good action and use the role of government in the market goodly so the market failure can resolved but if government intervention only for government get benefit it will make market failure become worse
Market failure is the situation where the free market cannot allocate their resources in the efficient way . Such as the social cost is exceed or greater than the social benefits for examples harming the environment , pollutions , widespread deseases , the bad effect that affected consumers by consuming cigerrates .
ReplyDeleteGovernment is the important part that can fixed the market failure because first government could imposed higher taxes to the companies that harming the environment trough their production process . Higher in taxes can caused the increased in price as well so their product will sustain the significant decrease in the demand especially if they have many subtitutes goods.by doing this it obtains the decreasing in the production process that harming the environment.
Government could influence the consumers for the healthy things and the importance for not harming the environment through advertisement or posters , by doing this the consumers will relies and reduce their demand in consuming or spend their money on the products . It will reduce the social cost as well. Because most of the companies objective is to have many market share so if they lost their demand they will try to do the best way to get them back.
Government could give subsidies or other awards for the companies or businesses that are using the green production process or production process that are not harming or damaging the environment and the society also.
However change their production process will affect to the output they produce too because they may not able to produce as much product they used to produce using their previous production process. When the demand exceed its supply the price will increase. Also higher in the taxes reduce the willingness people to work also the people who want to enter the market they will considered their idea .
Not all companies are able to produce good quality product using different production method or it may requires higher cost using the new production method even with subsidy( there are so many companies that need government helps) the companies will struggle to cover their cost with the sales revenue . .It would caused increasing the number of unemployment because many companies want to cover their cost with their revenue so they must cut their cost. And the investors too because they don’t want to invest their money in the companies that struggle in covering their cost.
So government intervention not always successful using taxes is not the efficient way in reducing the social cost because it will reduce the social cost but it could affect the economic growth also such as the decreasing in the GDP . When the supply of the GDP is increasing because of demand exceed supply the imports product would gave more demand than the local products. Government could try using advertisement and influencing customers mind about the environment and healthy lifestyle . Government should considered the best way in reducing the social cost that would no affect the economic growth as well.
Market failures is a concept within economic theory describing when the allocation of goods and services by a free market not efficient. In a free market, scarce resources are allocated through the price mechanism where the preferences and spending decisions of consumers and the supply decisions of businesses come together to determine equilibrium prices. The government may choose to intervene in the price mechanism to change the allocation of resources and achieve what they want to be an improvement in economic and social welfare. The main reason of policy intervention is to correct market failure, to achieve more equitable distribution of income and wealth and to improve the performance of the economy.
ReplyDeleteGovernment intervention to correct the market failure in their country is taxation, subsidies, regulation, standard and control and tradable permits. Indirect tax can be used to raise the price of de-merit goods and products with negative externalities designed to increase the opportunity cost of consumption. And government may offer tax credit for business investment in research and development and reduction in corporation tax designed to promote new capital investment and extra employment. Government can use the revenue from taxes to provide goods and services that not provided by the market. Government also can use subsidies to correct the market failure. Because subsidies can causes an increase in market supply and leads to a lower equilibrium price. If the company has enough money to produce their product and increase their quality of product, they can compete with other company and satisfy their customers. And subsidy used to encourage production and consumption which is particularly relevant in the case of merit goods and products that generate positive externalities.
However, when the government set higher taxes it can increase the cost of the production and the company can set higher price for their product to provide public expenditure and other facilities and the demand of the product will reduce because the customer don’t want to buy the product with high price. If the demand decrease it means the profit of the company will reduce and they can’t pay taxes to the government and the income of the people will reduce and the company may redundant their company because they don’t have enough money to pay their wages. And the subsidy, the disadvantages if the government always gives the company and local business subsidies is the market that the market may become dependent on this subsidy. In most undeveloped country, the government usually corrupted the money and they can’t use the money that should be allocated to the public goods.
And the conclusion is the government intervention can be success to correct the market failure if they can make the regulation and allocate the subsidy to the right people and they can’t use the money to satisfy their selves. If the government doesn’t take best decision to correct the market failure it can make the situation is getting worst.
Market is the medium which allows sellers and buyers to meet and exchange their goods and services, the price often determined by the force of supply and demand in the market. Market failure itself is the condition when the quantity of product demanded by consumers doesn’t equate to the quantity supplied. It’s often because the external costs exceed its benefits, the translation is they failed to allocate their resources efficiently. In this case, government is the authorities whose can do intervention to fix this failure by their decisions and actions.
ReplyDeleteTheir actions can be varies and helpful, such as if the company cost negative externalities a lot, such as pollution for society there will be complaints everywhere to the government. In this case society force goverment to close the company instead its getting worse. Government have to take responsibillities because if they close the business directly, they might cut workers job and it will increase the number of unemployment in a country. So how to overcome this problem is government could makes laws and regulation so the company will find a way how to reduce the negative externalities without be censured by society and closed by government.
Second, is by taxation. The examples are harmful goods such as ciggarettes, petrol, etc. It creates negative externalities so government can increase the taxes and make the consumers become unwilling to pay higher prices for the harmful goods because they think it is too expensive. The other benefits occur is when the consumption of these harmful goods reduce, it will reduce the negative externalities directly also it will encourage its company to find the “Green Alternatives” to overcome this.
Third is Subsidies, it is a payment of money given by a government to a firm to offset or reduce production costs. Subsidies may be given to firms in order to encourage them to produce goods and services that result in external benefits. E.g. Government give subsidies to bus company so they will operate more, this will increase the number of bus passengers because they don’t have to use their own car and there will be less pollution occured.
However, government intervention cause the pros and cons. From the Taxes, government can’t raise their taxes as they wishes because it will make the business impacted uncompetitive compared to the overseas business without taxes imposed. For the consumers itself, it is unfair for them because their disposable income is reduce and it is hard to satisfy their needs and wants remaining.
The conclusion is government intervention is not always successful in correction market failure, but it is true that it is needed in case to fix the market failure. The important notes is government should consider about side effects will occur if they take one decision and also they have to keep the both side consumers or producers stable, so no one/ side will turn downwards.
Market failure occur when the free market fails or inability to allocated resources in an efficient manner. Market failure includes severe effect to the economic growth, high inflation, un-fair income distribution. For example, monopoly providers may have the power to be price makers, setting high prices and making supernormal profits. Therefore society access to the commodities that have been provided by monopolists will depend on income and the poor may be unable or unwilling to sacrifice spending on other goods, this will create inequality. In response to the insufficiency, government intervention is required.
ReplyDeleteGovernment intervention occurs when markets are not working that is supposed to be. In simple terms, the market may not always allocate scarce resources efficiently in a way that achieve economic growth.
So, the way government to overcome or to correct the market failure is to impose taxes. Taxation is aim to achieve equity and to control negative externalities or output, so that the efficient level can be accomplished. For instance, if an individual drives their car to work every day causing pollution, a tax can be applied in order to increase the marginal private cost so it equal to marginal social cost. And also taxation for monopoly profits as the existence of monopoly power is often create the potential for market failure because the price is greater than the marginal cost and it leading to allocative inefficiency. Another one, subsidy, subsidy is a payment by a government to keep a low cost. This may benefits to the market itself as if it gets additional capital from the government and it would encourage market to produce commodities that have external benefits in the result so this would prevent the present of market failure.
However, the problem with the taxing is to set what level of taxation that should be imposed. It is very difficult for the government to accurately assess the benefits and cost a particular commodity has on every individual. If taxes are set too low it won’t have bring an impact, if their set the taxes that are too high so it could lead to problems such as the producers and consumer avoid paying taxes. Also for people on low income have to faced increases in tax on cigarettes and alcohol, which means they will be worse to achieve or create an equity. Also, if government keeps giving subsidies to the market, therefore it creates dependency to the market. If in the market receive subsidies then it would reduce their motivation than to someone who doesn’t.
So, in conclusion, government intervention in market failure is not always beneficial either disadvantages to the market. Government need to consider whether their decisions making are precise to correct the market failure with a best way. So it depends on how government role or government intervention on the market, if government handle the task with irresponsible then so, it create severe problem to the market because market failure includes severe effect to the economic growth, high inflation and would bring other problems.
Market failure is a situation in a market where quantity demanded and quantity supplied are not equal which resulted in no equilibrium in the market. When quantity supplied is more than quantity demanded, it can cause inefficiency of using resources. When resources are being used inefficiently, the scarcity will happen and there will be a market failure.
ReplyDeleteGovernment as the one who sets rules and regulation may attempt to interfere with the productions that are produced to the market. Interfering could be done by increase taxes, discourage consumers, and reduce subsidies.
Government should interfere with the market to prevent market failure. Increasing taxes to companies that were supplying more goods to the market when the demand for that good is not high might reduce the inefficiency created by the company as the producer become discouraged to produce more with the higher taxes imposed by the government.
Also, discouraging people with advertisements can reduce the number of sales that the producers are receiving therefore reduces producer’s production process and save resources. There are a lot of ways to discourage people from buying goods that didn’t meet equilibrium in the market. The most common is done by organizations that usually create ads of the damaged environment used to create the products.
Reducing subsidies would be wise for government as they reduce their public expenditure, the amount of people willing to buy goods are less and so does producers that discouraged to buy more raw materials without subsidies as delivery cost might increase due to reduced subsidies on gas.
However, it might not always be successful as producers aim to achieve and yield higher profit for their company. When producers are being restricted on producing more goods, they will tend to keep producing goods but with a higher price to cover the costs although it might not be effective, there are still people that might want to buy it.
Also, if government keep increasing tax more people will also be discouraged to work as everything gone expensive and it would be pointless if direct taxes are also increase that will eat up their income.
Reducing subsidies in such might create conflicts as people uses gas for daily activity and they will be affected with an increasing cost of their daily routines. This implies that government affects and interfere with normal people spending even if they’re not directly involve to market failure.
Although it might be said that government intervenes for conserve the environment. They actually started to reduce productivity of producers and create people discouraged to work. This means government will lose more taxes for public revenue as less company will willingly to pay higher taxes and decide to close their company. This also works for people who are working hard and everything in the market started to have their price increased.
To conclude it, governments are not always can intervene with market failure as they may fail. By increasing rate of tax might reduce productivity and people who are working that imposed by higher direct tax. Also even if government have good reasons for doing that, more people will be disadvantaged as their daily routines might be disturbed and more spending is needed while income are less as producers can make the employees redundant to reduce cost which will cause more unemployment to the country and less public revenue for the government.
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