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Government Intervention in The Price System : Economics (9708)

The document discusses reasons for and methods of government intervention in markets. It introduces market failures like externalities, public goods, and merit goods as reasons for intervention. It then explains different policy approaches like market-based and non-market based methods. Finally, it discusses specific market failures around monopoly power and deadweight loss, and poses questions for a class activity.

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NischalGautam
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39 views7 pages

Government Intervention in The Price System : Economics (9708)

The document discusses reasons for and methods of government intervention in markets. It introduces market failures like externalities, public goods, and merit goods as reasons for intervention. It then explains different policy approaches like market-based and non-market based methods. Finally, it discusses specific market failures around monopoly power and deadweight loss, and poses questions for a class activity.

Uploaded by

NischalGautam
Copyright
© Attribution Non-Commercial (BY-NC)
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as PDF, TXT or read online on Scribd
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Economics [9708]

Government Intervention
in the Price System*
* Remedies for market failure

Saturday, 28 November 2009 1


Introduction
 Reasons for government intervention:
1. Externalities
2. Public goods
3. Merit goods

Saturday, 28 November 2009 2


Methods of government intervention:

Market based policy


Non-market base
More about these in the next lesson

Saturday, 28 November 2009 3


Market Failure Revisited
 Market failure exists when the operation of
a market doesn't lead to economic
efficiency
 Productive efficiency
 Allocative efficiency

Saturday, 28 November 2009 4


Deadweight Loss
 Refers to the loss of economic welfare due
to the fact that potentially desirable
production and consumption does not take
place

Saturday, 28 November 2009 5


The Problem of Monopolies
 Any ideas for extra-merits?

Saturday, 28 November 2009 6


Class Activity
1. Explain why there is not allocative in a
monopoly market.
2. Explain why prices are likely to be higher
in a monopoly market than in a
competitive market.

Saturday, 28 November 2009 7

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