Government Intervention to Correct Market Failure

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    Government Intervention to Correct Market Failure

    • Governments intervene in the workings of the market mechanism to correct market failures
    • Some ways are obvious, others are less so
    • Governments use a variety of methods to correct market failure
    • The extent and intensity of such methods depends on how concerned the government is about a particular market failure, and whether the government intervention will produce a better allocation of resources.

     

    • There are two types of method that the government can take:
      • Methods that involve manipulation of the market mechanism (subsidies, indirect taxation)
        • These are generally referred to as marked based solutions
      • Non market methods
        • Direct forms of provision and various forms of regulation and control

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