Disadvantages Of Various Methods Of Government Intervention

Mathematics & Economics
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Methods of Government Intervention to Correct Market Failure
Introduction
Explaining "economic regulation" using patterns of government intervention in the market is major challenge. Business regulation by government is very important because the processes attempt to create a level playing field for industries competing while ensuring customer oriented and honest business practices. Every business should understand how the government affects its operations as well as the industry it is operating in and how they intend to run their company. Main concern for the government economic regulation policy is the monopoly industry (Baker, 2010). There are theories of economic regulation have been proposed that are very promising in government economic regulation (Baldwin, Cave & Lodge, 2012). This paper will argue that the price controls and antitrust law, the meaning, advantages and the disadvantages of the mechanism and examples to explain how the mechanism and the law work in the market economy.
2.0 Government Intervention
2.1 Price Controls
Price controls are mandates set by government on both minimum and maximum prices for certain goods and are frequently put in place as a means of direct economic intervention by the government to manage the affordability of certain goods especially basic goods or staples such as energy, food products among others (Stocking, 2012). The controls on prices that set maximum prices are known as price ceilings while those setting minimum prices are known as price floors. The importance of set price controls at a maximum point is that Price cannot rise above a given level. Thus, leads to a possible fall in prices below the market equilibrium price. The benefits the customers as the scenario may lead to lower prices. This scenario is also disadvantageous because it will lead to lower supply which will lead to a shortage. Demand will surpass supply leading to creation of waiting lists hence emergence of black markets in a bid as to curb shortage of the good while paying relatively above the market prices. Consequently, price controls leading to minimum prices gives producers a higher income. These incomes are used to increase farmers’ incomes in exchange for produce goods. Minimum prices are disadvantageous consumers who have to pay higher prices, higher import tariffs, encourages oversupply and inefficient and/or had over-supply. An example of price control scenario is Housing. A maximum price for renting may be set by the government to make sure housing is affordable. The results maybe reduced supply of housing hence homelessness (Stocking, 2012). However, the scenario may be that landlords have monopolised power making supply very inelastic. For this case, a price ceiling may result to cheaper renting exclusive of reduced supply. Generally price controls disturb the market mechanisms and lead to shortage or excessive supply. They can aggravate problems instead of bring fourth solutions. Nonetheless, in some occasions price controls may help for example, when experiencing volatile in agricultural prices.
2.2 Law
Introduce the Antitrust Law
Ant...