Micro economics environment - Government intervention

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Micro economics environment

Government intervention

   Before we go on to look at the monopoly, privations and the location of industry in spefic areas we have to consider that why do the government intervene. Ecominist identify many reason why its necessary for the government to intervene in economic activity. There are nationalised industries such as the post office. There is the public service were defence, law and order, education, banks and social security. To be honest any company that can have the government have the power to investigate any industry. They can do it for monopoly so the company has the power or they can legalise it, which control the company for example the water company. So the range of control that the government can vary from 100% to very little they do have the power to do what they want so that will affect all company’s.

Why do the government intervene

The existence of imperfect markets

None or little competition

 Monopoly- no competition

This is when generally one company takes up the whole market power

The existence of externalities

This is when one person or company action leads to the cost falling on other groups without there being any compensation paid bit there is been a social cost been generated from it.

The view that the consumption of certain products/services is bad for a social point of view.

This when the government will come in and say what they are allowed to use and banning certain goods or services e.g. certain drugs.

To provide merit goods

The government may produce a service that a public sector may not provide such as a school.

To provide public goods

These good would be provided by the private sector because they would find that many people, even if they benefited from the product they would refuse to pay for them. E.g. the health services law and order.

For purpose of strategic spending

Certain industries e.g. nuclear energy or naval dockyards may be considered to be too important to be left under private control. This was a post war argument for nationalist of basic industries. But today you do find that some are in the hands of the private sector.

Large scale investment  

Production that requires massive investment with little or no returns would not new undertaken by the private sector.

The question of equity

Because the private sector has its aim of profit maximisation it is felt that fairness may be ignored therefore the government intervene e.g. monopoly

There is also reason for them not to intervene such as there are two main government parties, the labour party and then there is the conservative’s party.

The labour party will practise intervention in the economy if there is

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Macro econominics terms

The regulation of industry

The provision of public merit goods. (Those products or service, which are not, disturbed through the price system but on the basis of merit or need EG health and safety)

The conservatives were the one in charge they would have little to do with intervention believing that,

The economy is self-regulating

Industry would be less efficient if heavily controlled, egg nationalised industries

The public should have greater choice in how it’s spend it money on the public and merit goods.

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