Question

Should the government intervene when the market/government fails?

What are some ways that you think the government intervenes to correct market/government failures?

Answer 1

Yes, the government has a responsibility to intervene if the market fails.

There are many instances where non-intervention led to failure. The clear-cut instance is the 2008 economic crisis where subprime mortgages in the form of risky houses as an asset have been kept as collateral assuming it is a very less-volatile object. If the government would have monitored the situation would not arise.

Some types of government interventions are -

Government can increase or decrease the tax rate which can change the consuming and saving pattern, adjust the tariff which can change the export and import rate, adjust the interest rate which can make them invest more or less in the economy, can print more/less money which can increase or decrease the inflation rate, can give protections and subsidy to infant industries.

Thus, government can play a key role in shaping the economy.