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Microeconomics: Government Intervention and Failure - Essay Example

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The writer of this essay "Microeconomics: Government Intervention and Failure" thinks that governments intervene for various reasons, including for the correction of failures in the market, achieving increased wealth, income distribution equitability, and improving economic performance…
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Microeconomics: Government Intervention and Failure
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Microeconomics: Government Intervention and Failure

Download file to see previous pages...  Governments can intervene through the institution of regulations and legislation. This occurs through laws passed by Congress, for instance, banning of tobacco in public spaces or banning sale of alcohol to those under the age of 16. For instance, the government uses competition policy laws to check cartels, which seek to fix prices, as well as other anti-competitive practices in the free markets (Besanko et al 178). Another form of law, employment laws, are also used to offer employees legal protection, for example, by setting the maximum number of hours they can work or by setting minimum wages to give the labor market price floor. Today, the amount of legislation and regulation governing economies is increasing. Regulators appointed by the government are also enabled to control the prices of major utilities like infrastructure, gas and oil, electricity, postal services, and telecommunications (Besanko et al 178). Governments may also use regulation in order to infuse the market with fresh competition. For instance, the government could disband a service provider’s existing monopoly as happened with British Telecom. This practice is also referred to as liberalization of the market. However, economists who support free markets have criticized government regulation. They claim that it adds onto business costs, especially due to increased “red tape” that makes businesses uncompetitive. Governments could also choose to provide directly services and goods to its people.  Due to increasing privatization of most economic sectors, the state-controlled by the economic sectors have shrunk in the last 20 years (Besanko et al 179). Funding by the state has been used in the provision of public goods and merit products to the population directly, for example, the ObamaCare healthcare plan, which seeks to pay firms in the private sector to provide healthcare to patients. In this case, this is meant to reduce waiting time and lists. Other examples include the government paying private firms to maintain and rehabilitate the road network, as well as to operate penitentiaries and prisons.
The government also intervenes through changes to fiscal policy. This is especially used to change the demand levels for specific services and goods, while also allowing the government to pattern the economy’s demands how they want it. One way to do this is through indirect ...Download file to see next pagesRead More
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