Market Failure and Government Intervention

Market Breakdown and Government Intervention In this article I will explain the concept of market failure and the measures taken by the government to compensate for the collapse of the market. The concept of resource consolidation market allocation is W. It is considered to be more theoretical in Baumol (1988, 631). Baumol believes that the economic model relies on the invisible hand concept first discussed by Adam Smith. With these models, a completely competitive economy can efficiently allocate resources without involving external agents (including the government) to engage in market intervention.

Critics of free market systems tend to believe that certain market failures require government intervention. First of all, the price may not fully reflect the cost or benefit of a particular good or service, in particular the environmental cost. Public goods are often under invested or used against other people or their descendants, unless prohibited by government regulations. Secondly, the free market is likely to conspire competitors, so an antitrust law is required. Anti-monopoly laws and similar regulations are particularly necessary if certain market participants (such as companies) have significant market power. Third, transaction costs may mean that certain exchanges are best done at the level rather than the spot market. Most importantly, the optimal resource allocation of Pareto in the free market may violate the principle of distribution justice and fairness, so there is a possibility that some government action may be necessary.

First, I will examine how government interventions can fix market failures. If distribution of goods and services in the free market does not bring economic efficiency, market failure will occur. According to fiscal policy, governments often use government expenditure for infrastructure, education, medical care, subsidies, etc. to prevent market failure. However, the role of fiscal policy of developed and developing countries can be significantly different, and the fiscal policy of developed countries is used to maintain full employment and stable growth, whereas the fiscal policy of developing countries is It is used to promote rapid economic growth.

Economic interventionism (sometimes national interventionism) is an economic policy perspective that facilitates government intervention in market processes, corrects market failures, and promotes people's general welfare. Economic intervention is the action taken by governments or international organizations in the market economy to influence the economy, strengthen contracts beyond fraud, and to prescribe the basic rules of public goods. Economic intervention can be a variety of things such as promoting economic growth, increasing employment, raising wages, raising or lowering prices, promoting income equality, managing money supplies and interest rates, expanding profits, dealing with market failures It covers political or economic targets.