Analysis of Government Interventions in Economics for Business

This report delves into the realm of government interventions within the field of economics, particularly in the context of market failures. It commences by defining economic statistics and government interventions, setting the stage for an in-depth analysis. The main body of the report dissects the advantages of government interventions in market failure scenarios, encompassing fairness, equitable resource distribution, social contracts, and the impact on marginal returns in income. Subsequently, the report critically evaluates the disadvantages of such interventions, especially when markets are functioning normally, addressing issues like inefficiency, the negative effects of policies, unequal wealth distribution, price fixing, control on prices, unemployment, and the impact on businesses, including tariffs and taxation. The report also considers the impact of government interventions on businesses and consumers, including the potential for black markets. The conclusion summarizes the key findings, offering insights into the nuanced role of government in the economy, and it provides relevant references.

ECONOMICS FOR
BUSINESS

Table of Contents
INTRODUCTION...........................................................................................................................3
MAIN BODY...................................................................................................................................3
Advantages of Government Interventions in the economy when market fails................3
Disadvantages of government interventions:.......................................................................6
CONCLUSION...............................................................................................................................9
REFERENCES..............................................................................................................................1

INTRODUCTION
The term economic statistics can be defined as depicting the data and figures
pertaining to a particular economy or region by using statistical tools. It is an extremely
important tool for analysing the performance of an economy. Government Interventions
also referred to as state interventionism, refers to the various reform actions and
policies that are adopted by the government in the scenario of inefficient market
situation. In the present report, the advantages of these government interventions that
have been applied in the situation of market failure will be discussed and their
contribution in helping towards regaining the normal state has been further detailed.
This report will also critique the negative impact of these similar government
interventions when the situation changes and market turns normal. The disadvantages
of these interventions in such situation of normal market will be further evaluated in this
report and lastly relevant conclusions have been derived from this report.
MAIN BODY
Market Failure is a situation categorized under neo classical economics. This
situation arises when their inefficient distribution of goods and services in the market
impacting the entire economy i.e. this situation occurs when individuals take those
decisions which are beneficial for them in their individual capacity but creates a negative
impact on an entire group i.e. these prove to be wrong decisions for the market. It is
also referred to as the state of disequilibrium where quantity supplied does not match
with the quantity demanded (Mazzucato and Penna, 2016). Often in such cases, it
becomes necessary to incorporate the concept of government interventions that are
formulated to control the adversity of the impact that such market failure has on the
consumers in that economy.
Advantages of Government Interventions in the economy when market fails
Government interventions when the market fails usually involves actions like
regularizing the market trade activities, not providing public goods, control on firms
exercising monopolistic power etc. There are many advantages of implementing such
government interventions in the inefficient market and these can be categorized as
follows:-

Fairness: When there is free market condition, rise of some firms or companies
over others is inevitable and it can often lead to giving more power and authority to
some companies over others. This leads to creation of a monopolistic environment
where a select few firms are able to exercise control over other firms. Monopolistic
power often leads to increase in inequality where employees are not paid justly,
customers are exploited by charging higher prices etc. Government intervention helps in
regulation of such monopolistic power by increasing the competition (Lemaire, 2017).
They further promote the equality of income in the market thus emphasizing on
economic fairness by using tools like price ceilings, price floors, black market regulation,
rationing etc. These regulations help the government in controlling disasters related to
the economic factors like recessions and inflation etc. Implementation of subsidies and
controlling the supply of money in the market are a few of those factors that assist in
ensuring that fair trade practices are incorporated in the market trade so that the
situation of market failure can be critically dealt with.
Equitable resource distribution: Another major cause behind market failure is
inequitable resource distribution. It can be adequately argued that a person is entitled to
the wealth that they have earned through the hard work and ability but often the
inherited wealth i.e. that wealth which has been accumulated just because being born in
a richer family is not a just distribution of the wealth and this is the major reason that
often leads to the gap between the rich and poor that keeps widening with passing time.
Implementation of wealth tax is one such taxation policy that has been implemented as
an intervention by the government(Vogel, 2018). This helps in effective reallocation of
the resources available in the community so that equal distribution of such resources
can be enhanced and the situation of market failure can be resolved. Apart from this,
there are many welfare programmes carried by the government like employment laws
which increase the protection, safety and benefits provided to a particular section in the
society which is suffering due to this cause of market failure, regulation of various
manufacturing industries that would enhance and ensure better well-being of the
consumers in the market. All these collectively help in rectifying the situation of market
failure and moving the market towards normal condition.

Social Contracts: Market Failure often creates a grave impact on the social
contracts and bonds i.e. these social contracts help in determining what actions should
be adopted by the responsible parties i.e. the situation of market failure often neglects
the environmental degradation and its repercussions that have to be faced by everyone
(Mazzucato, 2016). However, since there is no choice available, the incorporation of
government interventions in such situations is the only stimulator for the individuals
belonging to the vast majority of people without any support except government.
Regulation also controls negative externalities i.e. this ensures that environmental
degradation, depletion of natural resources and other similar factors are strictly under
control and further minimizes it by imposing penalties ensuring improvement in the
current scenario. Also, regulation of government minimizes and controls the cartel
formation in an inefficient market so that the monopolistic power exercised by them gets
minimized. These collectively help in addressing the situation of market failure.
Marginal Returns in Income: It is the law of diminishing marginal returns which
states that with each additional unit of income, the marginal utility decreases but when
the market is failing, even a small increase in the income of 10% can substantially
impact the confidence and desire to survive in the existing market conditions (Bond and
Goldstein, 2015). Government interventions basically work toward such redistribution of
the income in different market segments and these help in reallocation of the resources
making them available to the needier section of the society. This income redistribution
increases their satisfaction level and gives them survival options thus helping the
market shift form the present state of inefficiency towards the normal state. This justifies
the utilitarian motive of the government and acts as an advantage in the situation of
market failure.

Disadvantages of government interventions:
Government intervention refers to the actions taken by the government which
affect the economy of the country. It refers to the situations when the decisions of
individual and organization affected by the government actions. These actions affect the
economic system positively or negatively. There are some disadvantages of
government intervention in the economy are explained below:
INEFFICIENCY: Inefficiency in the economy comes when the government
controls the activity of individual and organization. Due to some reason expenses are
very high then the government minimize their profits in order to increase the prices to
meet the respective expenses (Robinson and Morgan, 2016). In the command economy
production capacity is inefficient because government feels that there is no competitive
pressure. Sometime government became less responsive and does not focus on the
needs and wants of the customer according to their taste and preferences.
NEGATIVE AND SHORT TERM EFFECTS OF POLICIES: government made
lots of policies and procedure for the benefits of the customer in both agriculture and
business sector. In agricultural sector government made price, direct and input policies
and in the business sector government implement policy of safety, health regulations,
loans. But these policies do not have long-term and positive effect on the economy of
the country.
UNEQUAL WEALTH DISTRIBUTION: government interventions did unequal
distribution of wealth towards the society and faces extreme poverty in the country. This
is the biggest disadvantages of the government intervention and have negative effect on
the economy of the country by the increase in poverty. For example the policy of
distribution of wealth by the government affects the persons who have low income and
have to pay the higher taxes. Regulations and policies are not made according to the
point of view of persons minimum income and wealth so the distribution of wealth by the
government are not equal and affect the economy of the country.
PRICE FIXING POLICY: the government action of fixing the price of products to
help the poor and needy people of the country that everyone could afford that product.
But this policy of helping the poor is very costly as compared to other method. Price
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fixing policy of the government will lose4s interest of the poor people in that product and
it will affect the economic system also.
CONTROL ON PRICES: controls on prices and wages of the consumer by the
government never work effectively because putting restrictions on each product and
services of the customer is impossible. For example, the production of the substitutes
products which have same features as like restricted products increases and the prices
of that substitute product raises faster than normally. So this is the disadvantages of
government intervention because restriction on each and every product creates
problems.
UNEMPLOYMENT: when the government increase the rates of the wages by
simple laws of demand and supply, company could hire fewer employees due to
increase in wages this will result in unemployment in the country. This drawback has
affect the economic system of the country (Pinder, 2017).
SMALL AND BIG BUSINESS: this step of government interventions affects the
working of small and big business because every time small business has to take
permission of the government for fewer rules and regulations and more rules for the big
business. Involvement of the government on both big and small business hurt most of
the customer by fair pricing policy. These laws affect the competitors due to high pricing
policy by the government.
USES OF TARIFFS: this is the another mode of government intervention which
affect the economic system of the country. This action forced the people to pay higher
prices on the goods and services and this will reduce the price of other goods and
services.
There are several businessmen who argued and said some disadvantages of
government intervention at the time when markets seem to be normal (Yu and et.al.,
2018). If there is no government restriction, then the free market will force to
businessman to protect their potential customers and provide excellent services and
products to them. They also believe that government creates nothing but a bureaucracy
that lead increased cost of doing and developing business. Wealth is not even
distributed equally due to governmental interventions at the time when markets are
normal. Greed and over production of substitute products of those products that are
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being restricted can imbalance economic stability (Ashford, 2018). Governmental
involvement and interventions are somehow good and beneficial for consumers but not
for businessman. Businesses are being developed with the main aim of earning money
but governmental interventions can decrease the sales of them. It can create several
barriers in expanding their business globally and attracting wider range of customers. It
can sometimes increase corruption and can create the situation of black market.
Sometimes governmental interventions ban and restrict selling of those products which
are harmful for people like liquor, tobacco after a certain time like 10.00 pm. This
restriction creates the situation of black market as many people sell liquor illegally which
is not good for people's health as it can increase their cost.
Taxation issues
The problem of taxation is the biggest problem in the involvement of government
because government charge heavy taxes and it will affect the income of the people.
There is a heavy tax rate which works on the progressive income it means the more you
earn the more you have to pay. The rate of taxes can be increased as well as
decreased by the government which has a direct impact on the main income of the
individual. There are some products on which the government used to provide subsidy
but also there are some products at which the government used to charge heavy taxes.
Political issues
They are the issues which are not constant and can change anytime. The
government can change policies anytime without giving warning to the companies. This
will impact the business in large amount as the whole operation will be impacted due to
this as well as the whole business decision will be impacted due to this. There is also
chances that the political parties may change, and they have an agenda which is
absolutely different from the business agenda and this may result in loss of the business
(Fogarty and et.al., 2016). For example sometimes the politician will increase the taxes
with the aim to increase the funds of the government programmes. This will result in
poor people became more poor and rich people became more rich.
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CONCLUSION
From the above study it has been summarized that government interventions
have both advantages and disadvantages for businesses and customers as well. Some
interventions at the time of imbalance in market and economy have several advantages.
When markets seem to be normal then it created several disadvantages for businesses
and customers as business man take undue advantages of some government
regulation.
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REFERENCES
Books and journals
Ashford, N.A., 2018. Technology-Focused Regulatory Approaches for Encouraging
Sustainable Industrial Transformations: Beyond green, beyond the dinosaurs,
and beyond evolutionary theory.
Bond, P. and Goldstein, I., 2015. Government intervention and information aggregation
by prices. The Journal of Finance. 70(6). pp.2777-2812.
Fogarty, L.A., and et.al., 2016. Long-term effectiveness of a peer-based intervention to
promote condom and contraceptive use among HIV-positive and at-risk women.
Public health reports.
Lemaire, D., 2017. The stick: Regulation as a tool of government. In Carrots, Sticks and
Sermons (pp. 59-76). Routledge.
Mazzucato, M. and Penna, C.C., 2016. Beyond market failures: The market creating
and shaping roles of state investment banks. Journal of Economic Policy
Reform, 19(4), pp.305-326.
Mazzucato, M., 2016. From market fixing to market-creating: a new framework for
innovation policy. Industry and Innovation. 23(2). pp.140-156.
Pinder, D., 2017. Regional economic development and policy: Theory and practice in
the European Community. Routledge.
Robinson, C. and Morgan, J., 2016. North Sea Oil in the Future: economic analysis and
government policy. Springer.
Vogel, S.K., 2018. Freer markets, more rules: Regulatory reform in advanced industrial
countries. Cornell University Press.
Yu, Z. and et.al., 2018. The dilemma of land expansion and governance in rural China:
A comparative study based on three townships in Zhejiang Province. Land Use
Policy. 71. pp.602-611.
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