GOVERNMENT INTERVENTION

Government Intervention

Government Intervention

Introduction

The UK government intervenes in the markets for some goods and services, but is apparently content for market supply and demand to determine prices and quantities in others. There are specific UK goods and services where government intervention is a key determinant of how much is supplied. In this paper, we will seek to find out what are rationales for the intervention of government in the market.

Discussion

Intervention in the market

Scarce resources are apportioned through the price mechanism in a free market economic system, where the equilibrium prices are determined by the preferences and spending decisions of consumers and the supply decisions of businesses. Through price signals, the free market operates. The likely profit from supplying to a market goes up, when the demand is high, contributing to an increase in supply (output) to come across growing demand from consumers. For day to day determination of the allocation of resources among competing ends, the free market mechanism continues an extremely controlling mechanism. Consumer welfare can be maximised by well-regulated, competitive markets which increases total welfare by kicking economic growth upstairs.

When markets perform substantially, firms flourish by furnishing the demands of consumers in a better and more cost-effective manner as compared to their competitors. Effective competition, as such, through better choice, lesser prices, and superior quality goods and services, offers important benefits for consumers. Strong incentives are also provided for firms by competition to be more efficient and ground-breaking, thus assisting move up growth in productivity across the economy. Nonetheless, markets left to their own devices, will not essentially supply the best outcomes for consumers, companies or Government. So as to deal with this, legal and institutional frameworks are set by Government for markets and companies to perform their operations. Explicitly, it puts rules and regulations in situ that establish proper manner of firms and individuals, and the body essential for their enforcement. Therefore, independently of Government, markets do not exist. Government has a legitimized role in interposing in the market and influencing them. More widely, Government also intervenes in markets for the achievement of other policy objectives and counterbalance market failures. However, it is critical for both the efficiency of its interventions and their outcomes that which way is chosen by the government to do so.

It may be chosen by the government for intervening in the price mechanism mainly on the bases of requiring a modification in the resources' allocation and achieving what they recognize to be a development in economic and social welfare. Whether of any political affiliation, all governments intervene in the economy to control the apportionment of resources in short supply among competing uses.

Rationale for Government Intervention

The main rationales for intervention of policies include: correction of market failure, achievement of a more equitable and fair allocation of resources and wealth, improvement in the functioning of the economy.

Market Failure

Market failure pertains particularly to the grounds of the failure i.e. setbacks with the system through which the operation of market takes place, not the outcomes ...