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Introduction To Economic Policy (EC1040)

Sandra Watson
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Governments can sometimes improve market outcomes Essay


Trinity College Dublin University of Dublin

Governments can sometimes improve market outcomes. Discuss this statement in detail giving
examples of situations in microeconomics where Governments should intervene in the markets.
Governments can sometimes improve market outcomes. There are two broad reasons why a
government may choose to intervene – to promote efficiency and to promote equity. Thus a
government may intervene when efficiency and equity are absent, ie. in the case of a market
failure. A market failure is when a market on its own fails to produce an efficient allocation of
resources. Markets ensure those who can pay for goods get them; there is no equitable
distribution of economic well being; for example, income support, welfare housing, public goods
etc. This essay will discuss price controls; taxes and subsidies; positive and negative
externalities; common resources and public goods; income redistribution; imperfect information
and imperfect market structures as examples of situations where governments should intervene
in markets.



Introduction To Economic Policy (EC1040)




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