Essay on Government Intervention

1564 Words Jan 20th, 2011 7 Pages
Discuss the case for and against government intervention in an economy.
In most of the countries, the government has intervened in the market system. To some extent there is a dire need of government intervention in the market system, although there is a debate over this point among the economists. Many economists believe that the role of government intervention improves the market system. The government can easily enforce the rules that can help in the smooth functioning of the market system. On the other hand, there are economists who believe that government interventions in a market system are the reason of inefficiency in the system.
There are some goods that underprovided and underconsumed. Such goods are cold merit goods. They can
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The market equilibrium wage for this particular labour market is at W1 (where demand = supply). If the minimum wage is set at Wmin, there will be an excess supply of labour equal to E3 – E2 because the supply of labour will expand (more workers will be willing and able to offer themselves for work at the higher wage than before) but there is a risk that the demand for workers from employers (businesses) will contract if the minimum wage is introduced.
Although all political parties are now committed to keeping the minimum wage, there are still plenty of economists who believe that setting a pay floor represents a distortion to the way the labour market works because it reduces the flexibility of the labour market 1. Competitiveness and Jobs: Firstly a minimum wage may cost jobs because a rise in labour costs makes it more expensive to employ people and higher labour costs might damage the international competitiveness of British producers. To the extent that rising unemployment worsens the living standards of those affected it has a negative impact on poverty. 2. Effect on relative poverty: Is the minimum wage the most effective policy to reduce relative poverty? There is evidence that it tends to boost the incomes of middle-income households where more than one

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