Chapter 5, Problem aWYWL

To determine

To explain:

The meaning of market intervention and explain its two main forms namely price control and quality control.

Explanation of Solution

The market mechanism cannot always ensure the fair allocation of resources to produce goods and services. It may lead to overproduction of goods with harmful effects and underproduction of goods with benefits. Many times, it fails to generate the required economic welfare or distribution of economic benefits among its members. Sometimes, a vulnerable section of the economy may need protection. In such situations, the government or regulatory authorities use economic policies to control the behaviour of the agents of the economy and thereby try to bring about the desired change. This is known as the market intervention.

The two most powerful economic variables that can influence the behaviour of the economic agents such as sellers and buyers quickly and effectively are price and quality. For this reason, the governments tend to intervene in the market through these variables, either in the form of price control or quality control.

Economics Concept Introduction

Market Intervention:

Using various economic policies the government regulates the free flow of the market mechanism. This is termed a market intervention.