Lecture 5- Market failure (2)

Government may need to intervene in market where there is lack of information ([blank_start]asymmetric[blank_end] or [blank_start]imperfect[blank_end] information) because otherwise it is likely to lead to [blank_start]inefficient[blank_end] outcomes, [blank_start]exploitation[blank_end] of consumers ([blank_start]reduce[blank_end] consumer welfare) & [blank_start]suppliers[blank_end] may not be willing to supply

Government may intervene in market where there is lack of information ([blank_start]asymmetric[blank_end] or [blank_start]imperfect[blank_end] information) by finding ways of facilitating [blank_start]exchange[blank_end] of information, [blank_start]legislating[blank_end] i.e. Consumer Protection Act & [blank_start]regulating[blank_end]

Government may need to intervene in market where there [blank_start]barriers[blank_end] to entry. This is especially in [blank_start]monopoly[blank_end] & [blank_start]oligopoly[blank_end] market. This is because [blank_start]monopolist[blank_end] abuse its strong position in market & therefore [blank_start]consumers[blank_end] suffer & therefore [blank_start]economy[blank_end] suffers. They do this by [blank_start]increasing[blank_end] prices (as they are only [blank_start]suppliers[blank_end] in market) & providing [blank_start]poor[blank_end] quality products (as there is little [blank_start]competition[blank_end])

Government may intervene in market where there [blank_start]barriers[blank_end] to entry by [blank_start]regulating[blank_end] & [blank_start]legislating[blank_end]. This makes it easier for [blank_start]new[blank_end] competitors to [blank_start]enter[blank_end] market. Also, government can make it easier for [blank_start]start up[blank_end] businesses by supporting them i.e. [blank_start]subsidised[blank_end] loans

Government may need to intervene in market where there are [blank_start]cartels[blank_end] & [blank_start]collusion[blank_end]. This is because when there is [blank_start]cartel[blank_end], oligopolists share out some [blank_start]monopoly[blank_end] power. Therefore, they charge [blank_start]higher[blank_end] prices, potentially [blank_start]lower[blank_end] quality & [blank_start]less[blank_end] real choice

Government may intervene in market where there are [blank_start]cartels[blank_end] & [blank_start]collusion[blank_end] by [blank_start]legislating[blank_end] i.e. Consumer Protection Act, [blank_start]regulating[blank_end] i.e. Competition Commission (aim to ensure there is no [blank_start]illegal collusion[blank_end] between firms)

Government may need to intervene to control pricing because to ensure there is [blank_start]equity[blank_end] (allows goods that may be considered [blank_start]essential[blank_end] to society are [blank_start]fairly[blank_end] priced) & prevent [blank_start]price discrimination[blank_end]. Also, they intervene to ensure [blank_start]price stability[blank_end] (in interests of [blank_start]suppliers[blank_end] & [blank_start]consumers[blank_end]). In addition, they may intervene to counter power of [blank_start]monopoly[blank_end] or [blank_start]oligopoly[blank_end] & finally to encourage [blank_start]investment[blank_end] or [blank_start]supply[blank_end]

Government may intervene to control pricing by imposing [blank_start]maximum prices[blank_end] & [blank_start]minimum prices[blank_end]

Government may want to use [blank_start]buffer stocks[blank_end] to intervene in market to reduce [blank_start]instability[blank_end] (ensure price does not [blank_start]fluctuate[blank_end] quickly). Also, they may intervene to provide certainty for [blank_start]consumers[blank_end] & [blank_start]suppliers[blank_end]. Finally, they may need to intervene in [blank_start]agricultural markets[blank_end] where there are delays in decision making

Government may want to ensure there is redistribution of [blank_start]income[blank_end] & [blank_start]welfare[blank_end] to ensure there is [blank_start]equity[blank_end]. Also, to ensure [blank_start]political stability[blank_end]

Government may intervene to ensure there is equal distribution of [blank_start]income[blank_end] & [blank_start]welfare[blank_end] through [blank_start]transfer payments[blank_end]. Another way is [blank_start]direct provision[blank_end] i.e. education & healthcare. Third way is setting [blank_start]minimum wages[blank_end]

Government may need to do direct provision of [blank_start]public goods[blank_end] & [blank_start]merit goods[blank_end]. Also, to ensure there is [blank_start]equity[blank_end]. Another is because there may be [blank_start]quality/information[blank_end] concerns

Government may intervene using [blank_start]taxes[blank_end] & [blank_start]subsidies[blank_end] for charging [blank_start]polluter[blank_end]. Also, for raising [blank_start]revenue[blank_end] for other government purposes ([blank_start]macro[blank_end] goals, [blank_start]public[blank_end] goods, subsidising [blank_start]merit[blank_end] goods). Finally, to ensure there is [blank_start]equity[blank_end] (tackle income [blank_start]inequality[blank_end])