Externality and Government Essay

Submitted By mkpiki
Words: 2242
Pages: 9

Market Intervention
In this essay I will be discussing the issues in relation to the reasons a government may intervene in a country’s economy based on National minimum wage that was introduced in 1999.Government intervention is an action taken from the government that alter or change economic activeness, supply ability, and the unconstrained decisions made through normal market trade. Throughout numerous years many companies have been paying employee’s very low wages the minimum wage is a price that is imposed by the government on the labour market. The main aim of implementing a minimum wage was to increase the standard of living nationally. Since introduction of minimum wage under the Labour Party increasingly difficult to control inflation has been raised sixteen times in an effort to try and keep up with inflation. I will make an effort to explain the Advantages of Government Intervention and the disadvantages.
Externalities are the result of an economic activity that is experienced by unrelated third parties. These may be either positive or negative externalities. the most important advantage of government intervention is that it can overcome market failure.
The main reasons for government intervention are to change and correct a failure in the market to create reasonable and rational distribution of wealth and income nationally, to make improvements to the performances of an economy. They may be able to do this by implementing barriers of control concerning allocation of recourses. Governments may have reason to believe that improvements can be made in the current economy and that it is for the own good of the country as they may benefit in the long run. Intervention in the market can potentially create various social benefits this may be achieved when the costs of production and consumption are equivalent to social benefits. The occurrence of market failure happens when markets become inefficient. There could be many reasons for market failure some of these are the effect of Lack of information. In the case of misinformed consumers whereby the private sector has withheld valuable information on the goods that they are selling the government can intervene to deliver the substantial level of knowledge on the goods
There are many advantages of market intervention concerning Merit and Demerit goods in a good example to go by merit goods such as healthcare provided by the government body NHS are seen as a social benefit in terms of improving the economy thelong run as it promotes healthy able bodies people enabling them to work which helps in the growth of an economy. Also with education you are more likely to earn more increasing your disposable income which is invested in businesses one way or another. A Society in good health with an educated background allows you to live a better n more prosperous life than those without. Lack of knowledge that these options are available can be the cause in effect of intervention which is why the government encourages education by making it free for all in the UK is free for children up until the age of 16 regardless of background. The Intervention in this area takes away barriers and lifts imbalance of opportunity. An example where the government intervenes concerning demerit goods such as cigarettes is regulating an creating restrictions by instigating the ban of smoking in public areas, putting pressure on the producers to the inform their customer of the harm caused by their products. Other reasons for market failure are the externalities, missing markets, factor immobility and inequality. These are all some of the main advantages.
The disadvantages of market intervention which are closely related to minimum wage are when a there is market failure in form of dis-equilibrium of supply and demand whereby a monopsony’s and a trade union are present in the labour market there are many small buyers of labour. There is a supply and demand of labour. The level of people employed