Government Intervention - Examples and Case Study

Topics: Economics, Market failure, Welfare economics Pages: 3 (1054 words) Published: April 14, 2013
The main purpose for a government to intervene within a market is to improve and strengthen the performance and stability of an economy by hopefully correcting any market failure through enhancing the allocation of resources and striving towards a progression in economic and social welfare by balancing the distribution of income and wealth. Not all intervention can be beneficial however; government failure occurs when this method causes a situation to worsen usually by affecting the efficiency of which resources are allocated creating several unintended effects which can create negative externalities. The main contributor to government failure is the decision to raise taxes typically on de-merits goods which can potentially lead to an increase in the amount of companies attempting to avoid tax which stimulates trade within unauthorised markets affecting the demand for the good and overall economic welfare. In addition to this, newly enforced austerity measures can lead to poor incentives for people to work causing productivity levels to fall increasing the likelihood of unemployment. Teamed with higher rates of income tax, it can produce a strong disincentive to work longer hours or take better paid jobs distorting the balance of the economy. One prime example of government failure is the fishery policy, it was assigned with the upmost intentions to help combat the imminent problem of overfishing however since its introduction has failed to achieve its initial objectives and has actually caused much deeper problem for the European fishing industry. The current EU quotas in place do not work well in restoring fish stocks due to the continuous dumping of discarded fish into the oceans, which not only produces unnecessary waste but lowers the volume of fish available for fishermen to catch which is a major problem across European waters due to fleet overcapacity. Overfishing is an example of where there has been a failure to implement agreed fishing quotas forcing...
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