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The Rationale for Government Intervention
Critically evaluate the argument that government intervention is necessary for the provision of certain goods. In your response, first describe the specific characteristics of these goods that make them unprofitable for private firms to supply. Then, explain how government action can resolve this supply problem.
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CORE Econ
Economics
Social Science
Empirical Science
Science
Economy
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In a market-based system, certain goods are often under-supplied or not supplied at all by private companies, leading to calls for government provision. What is the core economic reason that explains this specific type of market failure?
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A good that is unprofitable for a private company to produce should never be considered for government provision, as the lack of private profitability is a definitive signal that there is no collective demand for the good.
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When a private market fails to provide a good like a public lighthouse service because it is impossible to charge passing ships for the light they use, the government may intervene to provide it. This situation arises because the good is non-excludable, which creates a __________ problem, making it unprofitable for any private firm to supply the service.
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