Question

Substantiate the political and economical reasons for government to intervene in markets

Answer 1

Government intervention is action taken by the government that affects market economy.Governments intervene in markets in order to control inefficiency in market.The government tries to control equities in the market with the help of regulation,taxation as well as subsidies. Recession and inflation are part of business cycle and have damaging influence on people. Here government intervention takes the form of subsidies.The government may also intervene with the intention of promoting economic fairness.Government try to take money from the rich through taxation and distribute money among the poor through welfare programs To maximize social welfare is another important reason of government intervention. Egs are regulation of pollution which is a negative externality. Another eg is breaking of monopolies.Promoting national unity and advancement is another aim of government intervention.Price ceiling through rent control is an eg of government intervention that promotes advancement.