Government intervention occurs in markets to reduce outcomes that are inconsistent with the social, moral and ethical values of society

Topics: Marketing, Pricing, Profit Pages: 2 (555 words) Published: November 12, 2013
Firms tend to attract consumers by product differentiation and hence, establishing a new brand loyalty so it could result a market outcome that will clash with such values. In addition, there could be conflict of interest between the firms and consumers for the purpose of profit maximization. For instance, quality or ingredients used for the products could deteriorate or harmful but it results in greatest revenue. In order to gain market share, firms may also sell their products at a much cheaper price compared to peers as a result of cheap but harmful ingredients so that the consumer will buy cheaper product to save income. As to achieve objective of firms, they will lower quality of their hair care product when the government set a price floor which cost production will increase. For instance, some firms will put in some chemicals such as formaldehyde gas into their hair care products which may help them to attract consumer by straighten the consumer hair but it was unwritten information because the firms want to cover the usage of the gas in their hair care product as it will cause cancer. When government interventions in the hair care industry, they could impose taxes such as excise tax on the chemicals that are used in hair care products. Taxes can be used to prohibit producers to pay the costs of their activities impose on others such as by imposing tax to formaldehyde. Excise tax on chemical used in hair care product is to reduce consumption of the undesirable goods and decrease quantity demanded. By increasing of the production cost, this will lead to supply curve shift to the left, results increases in price. Consumers will change preferences to other substitutes as an outcome. This may avoid problem associated with the quality of the product and unacceptable standard hair care product. Government must ensure that the firms must fully disclose complete information and ingredients used in the hair care product to guarantee safety of the product as to...
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