Government Intervention
Government Intervention in Market Failure
Carlos Davila
St. Martin University
Government Intervention in Market Failure
A government is responsible for the well being of the people they govern and the society they serve. But what does that responsibility entails and what sort of rights does it grant said government? Government intervention has long been a debated subject especially among the private sector who has fought to keep the government from intervening with the way they run their business. But what happens when there is market failure? Who is responsible for recovery, who is to blame for the situation and what does market failure mean to the rest of us? One of the reasons for this failure is the production of public goods. Externalities also tend to distort the market becoming another form of market failure. Excess market power is another form of market failure by preventing the market from achieving efficiency. But what can the government do? Is the government more of a reactive source or are there other options for government intervention that would benefit the common people. First we need to understand market failure. Morey (2014) describes market failure as something that is inherent to the market that causes the market equilibrium allocation to be inefficient. As a market we can produce a set of output necessary in the production curve, but when we produce too much of something the market conditions are no longer optimal and it creates a failure of the market. All the while there was another conceivable market outcome that would have benefited everybody instead of only self-interest. The threat of market failure is a reason why government and national institutions have insisted in intervening with certain markets. What does government intervention have to do with market failure? To answer the question posted in the previous paragraph it is important to identify a case of market failure. As in most cases we,
Carlos Davila
St. Martin University
Government Intervention in Market Failure
A government is responsible for the well being of the people they govern and the society they serve. But what does that responsibility entails and what sort of rights does it grant said government? Government intervention has long been a debated subject especially among the private sector who has fought to keep the government from intervening with the way they run their business. But what happens when there is market failure? Who is responsible for recovery, who is to blame for the situation and what does market failure mean to the rest of us? One of the reasons for this failure is the production of public goods. Externalities also tend to distort the market becoming another form of market failure. Excess market power is another form of market failure by preventing the market from achieving efficiency. But what can the government do? Is the government more of a reactive source or are there other options for government intervention that would benefit the common people. First we need to understand market failure. Morey (2014) describes market failure as something that is inherent to the market that causes the market equilibrium allocation to be inefficient. As a market we can produce a set of output necessary in the production curve, but when we produce too much of something the market conditions are no longer optimal and it creates a failure of the market. All the while there was another conceivable market outcome that would have benefited everybody instead of only self-interest. The threat of market failure is a reason why government and national institutions have insisted in intervening with certain markets. What does government intervention have to do with market failure? To answer the question posted in the previous paragraph it is important to identify a case of market failure. As in most cases we,
References: Art Carden, Steve Horwitz. "Is Market Failure a Sufficient Condition for Government Intervention?." April 1, 2013. Library of Economics and Liberty. Retrieved February 1, 2015 from the World Wide Web: http://www.econlib.org/library/Columns/y2013/CardenHorwitzmarkets.html Berenstein, J. (2013, November 1). Market Failure and Government Failure. Retrieved January 27, 2015, from http://economix.blogs.nytimes.com/2013/11/01/market-failure-and-government-failure/?_r=0 Morey, E. (2014, October 2). An Introduction to Market Failures. Retrieved February 1, 2015, from http://www.colorado.edu/economics/morey/4545/introductory/marketfailures.pdf Pigou, Arthur C., 1920, The Economics of Welfare (London: Macmillan). Schiller, B. (2011). Essentials of economics (8th ed.). New York: McGraw-Hill/Irwin.