Analysis of Government Intervention in the Economy: UK Market Policies

This report delves into the crucial role of government intervention within the economy, focusing on the UK. It begins by defining key economic terms such as market failure, public goods, merit goods, externalities, and imperfect competition, highlighting the government's role in each. The report then examines the Competition and Market Authority (CMA) policy, explaining its formation, objectives, and the instruments employed by the UK government to achieve its goals, including the Competition Act 1998 and various associations. Furthermore, it evaluates the performance of this policy, emphasizing its success in promoting competition, providing fair market opportunities for businesses, and maintaining price stability. The report concludes by underscoring the importance of government in regulating the market and ensuring economic stability, supported by references to relevant academic sources.

Role of Government
Intervention within
the economy

TABLE OF CONTENTS
Section 1...........................................................................................................................................1
Explain the meaning of following terms with role of government in it .....................................1
Section 2...........................................................................................................................................2
a) Explain the policy ..................................................................................................................2
b) Identify and describe instruments used by government to achieve their policy ....................2
c) Evaluation of performance of policy in UK............................................................................2
REFERENCES:...............................................................................................................................4

Section 1
Explain the meaning of following terms with role of government in it
Market failure – It is a situation in which goods and services are not allocated properly in a free
market. It often leads to unequal distribution of goods among people. This situation occurs
because of three factors such as missing markets, negative externalities and imperfect
competition (Miller and Rose, 2017).
Public goods- It refers to goods and services that are provided without profit by government to
society. The main purpose of this is for well being of people. Government plays a crucial role in
this. They ensure that goods are been provided to every one at low price. Also, they control and
regulate the supply of goods in the market. Examples of public goods are : defence, water, etc.
Merit goods – It refers to goods and services that is consumed by people and are provided at free
at point of use. In this consumption is not dependent on ability to pay. For example education,
health services, etc. (Stiglitz and Rosengard, 2015). These goods can be provided by both
private and public sector. The role of government in this is to decide which goods should be
supplied. They encourage people to consume these goods so that living standard can be raised.
Externalities – They are the third parties that can create either positive or negative impact on
economy by performing certain activities. For example- an industry can pollute its surrounding
environment in which it operates. In this government can provide subsidies to promote positive
externalities (Sandford, 2015). But on the other hand they can take string actions to reduce
negative externalities. They control both of these by developing laws and regulations.
Imperfect competition- It is a type of competition in which are only few sellers and many
buyers. Generally, it is known as monopoly market. The goods sold in this are heterogeneous. In
this government tries to control the problem of market failure. They develop strategies on how to
control price, supply, etc. of goods. They intervention in between so that markets condition can
be maintained. Besides this, for controlling prices they set standards price.
Therefore, from this it is concluded that government plays a major role in controlling
economy. Their main responsibility is to regulate and control market by developing effective
policies and taking actions on right time (Grossman and Woll, 2014). The entire economy is

dependent on market conditions. So government have to ensure that economic conditions remain
stable. The situation of missing market does not get created that is why government uses
different acts and policies for regulation.
Section 2
CMA- Competition and Market Authority
a) Explain the policy
This policy was formed on 1 October 2013. The government of UK have developed a
commission in order to control and manage competition in the market. Its function was to
provide fair trade to business in UK (Denton, Forsyth and MacLennan, 2017) Also, laws and
policies are developed to promote competition for consumers. The main aim of this policy is to
make markets good and better for companies and economy. It is used to manage office of fair
trade (OFT) and competition commission. The goal of government is to increase output of GDP
by doing growth of economy.
b) Identify and describe instruments used by government to achieve their policy
There are several instruments used by UK government for this policy. These are as
follows :-
Competition act 1998 – This act is been used to regulate all the activities of markets and
businesses. This act is used to restrict and deal the illegal business practices. Also, it is used to
abuse dominant market position by a particular business. This act was made separately by UK.
Associations- this act consists of association who can be a member of CMA. They develop
policies and laws on how to manage business (Song and Cullinane, 2017) Besides this, they
decide should the rule of act must be applied or not. It has been useful in implementing act in
various situations.
Along with this, business are educated about this act so that they comply with
competition act. This has enabled government to achieve policy. Moreover, there are many
changes made in policy so that it can be made flexible. Furthermore, by enforcing this policy
stability in markets has been maintained. It has made merger and acquisition easy.

c) Evaluation of performance of policy in UK
UK government has successfully implemented this policy. It has enforced businesses to
follow it and promote competition in effective way (Miller and Rose, 2017). Besides this, this
policy has provided ease to business to grow and develop accordingly. Moreover, it has given
positive outcomes and has given fair chances to companies to operate in different markets.
Furthermore, it has also useful in controlling competition in market. Through this consumer are
getting large variety of goods to choose from. The effectiveness of policy is that it has created a
fair market and economy for consumers. It has allowed government to investigate businesses that
they are working in public interest or not (Stiglitz and Rosengard, 2015) This has been a great
advantage to people. Government have set standards for price of goods and services. It has
allowed keeping rate of inflation low and stable.
Thus, from this it is concluded that CMA has helped government to control and manage
competition in the market. Also, there has been stability in inflation rate. CMA has benefited
consumers by restricting businesses to follow illegal practices.

REFERENCES:
Books and Journals :
Denton, G., Forsyth, M. and MacLennan, M., 2017. Economic planning and policies in Britain,
France and Germany (Vol. 3). Taylor & Francis.
Grossman, E. and Woll, C., 2014. Saving the banks: The political economy of
bailouts. Comparative Political Studies, 47(4), pp.574-600.
Miller, P. and Rose, N., 2017. Political power beyond the state: Problematics of government.
In Foucault and Law (pp. 191-224). Routledge.
Sandford, C.T., 2015. Economics of public finance: an economic analysis of government
expenditure and revenue in the United Kingdom. Elsevier.
Song, D.W. and Cullinane, K., 2017. The productive efficiency of container terminals: An
application to Korea and the UK. Taylor & Francis.
Stiglitz, J.E. and Rosengard, J.K., 2015. Economics of the Public Sector: Fourth International
Student Edition. WW Norton & Company.
Online :
CMA, 2016. [Online] Available through :
<https://www.economicshelp.org/microessays/competition/>