Government Intervention Analysis

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This paper would explore the appropriateness of government intervention in the economy, which is a highly debatable topic. For example, free market economists would argue that there should be a strict limitation on government intervention as it often leads to an inefficient allocation of resources. However, many might argue that government intervention is necessary in different fields (Pettinger, 2012). The appropriateness of government intervention will be evaluated by considering its implications on various factors such as social welfare and efficiency. This paper will start by describing the three types of economic systems then, section 2 will describe the different forms of government interventions in the market system. Section 3 will explain…show more content…
Section 5 would conclude this paper with my opinions.

There are three types of economic systems and they are the free market economies, mixed economies and centrally planned economies. In a free market economy, allocation of economic resources is based on the decisions of households and firms interacting in markets. The Scottish philosopher Adam Smith, who is renowned as the father of modern economics was an early and influential argument for the free market system (Blenman, 2016). Many people during Adam Smith's time believed that the alternative to the guild system was economic chaos. However, Adam Smith argued against that and believe that a country could enjoy a smoothly functioning economic system if firms were freed from guild restrictions (Hubbard and O’Brien, 2014). On the other hand, the characteristics of both socialism and capitalism are featured in a mixed economic system. In a mixed economy, the government interferes in the allocation of resources in order to achieve social aims, although most
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There has been no real model of a society that runs in the absence of it (Pettinger, 2012). Some form of government intervention is usually necessary to ensure greater equality and prevent market failures. However, the government might make bad decisions as they can be influenced by political pressure groups. Furthermore, government intervention might also create excess bureaucracy and inefficiency when they spend on public and merit goods. As mentioned earlier in this paper, government intervention can be very helpful when the market fails. Without any government intervention, many people in the society can be negatively affected. An example would be the overconsumption of products with negative externalities which is the result of demerit goods. The government can intervene by setting a minimum age for consumption and even hold information campaigns to raise awareness. Government intervention is also necessary when prices of goods and services are rising to protect the consumers and when they're falling to protect the producers. Without the implementation of a price floor or price ceiling, prices might rise too high or fall too low which will have an adverse effect on many people. Although government intervention is necessary most of the times, there are times when it should be avoided. Such interventions shouldn't be necessary if the market is running smoothly

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