Economics

Students Name:

Student ID:

Author Note:
What are the possible reasons why the government may make a market
intervention?

There are many reasons in which the Governments intervene in the markets. The first reason
is the market inefficiency or in the market failure. It is required for the in the efficient market
that all the resources will be correctly allocated to those who will need them in the time they
need it (Bond & Goldstein, 2015). In the case of the inefficient market some of them are
having enough resources, and some of them are not having at all. Inefficiency can have in
different forms. The government will try to combat these disproportion with the help of some
of the regulations like taxation and subsidies.

What are the possible implications of such interventions?

The possible implications that the government does in interventions are the taxation, subsidy,
buffer stocks with the help of these the government can able to make interventions. By the
help of the taxation, the government help to reduce the supply and therefore increase the price
to discourage the production or the consumption of goods by these the government can tackle
the market failure (Bond & Goldstein, 2015). Moreover, in the case of the subsidy the
government helps to motivate the supply and by this, it will help to reduce the prices, or it
will increase the consumption of the good which will help the market.

How might the wedge between consumers and firms lead to market
distortions?

If the wage of the consumer is lower than the products or the goods, then it may lead to the
distortion a company will make the products according to their needs, not to the market
demand. Not all the time the government actions are the main reason for the distortion. If the
only one company has a monopoly in the market and there are no competitions in the market,
then it will lead to higher prices. This distortion will cause the problem to the consumers.

In the first video, in which has been discussed about the price elasticity which means to
control the prices of the market which is the form of the interventions of the government. By
this, the government can improve the market demand and supply.
In the second video, it has been describing that if the consumer has a proper wedge, then he
will able to spend more on the products which the market offer to. If the price goes higher,
the consumer will not be able to purchase goods from the market.

References:

Bond, P., & Goldstein, I. (2015). Government intervention and information aggregation by
prices. The Journal of Finance, 70(6), 2777-2812.