Case for and against Government Intervention
Introduction
Economics is a subject of studying the allocation of scarce resources that have alternative uses to the unlimited human wants. As such it is the study of market systems and how this system works efficiently and what are the causes of market failure. This essay highlights what are the major causes of market failure in the economy. Continuing on this the case for government intervention where the arguments that support government intervention are laid out. However there are arguments against government intervention which are also discussed in the latter part of the essay.
Market system:
A market system is a place where the demand for and the supply of a product determines its equilibrium price and equilibrium quantity. It is the demand and supply forces that clear the market and give price signals about the demand increase or decrease or about the supply increase or decrease. There is a limited role for the government in the market economy. Classical economists thought that the demand and supply forces in the competitive market interact with each other and hence would promote the efficiency in the use of resources. This ensures that the markets clear themselves and reach the productive and allocative efficiency in the economy. The figure below shows a competitive market where the Demand and supply forces of DD and SS curves intersect and clear the market for the product.
(I.C. JPS 2039)