The Impact of Government Intervention

The Impact of Government Intervention

Courses Info

Level: AS Levels, A Level, GCSE – Exam Boards: Edexcel, AQA, OCR, WJEC, IB, Eduqas – Economics Revision Notes

Aims of Government Intervention

  • Enforce price stabilisation and greater consumer choice by promoting competition between firms
  • Discourage the consumption of demerit goods and encourage the consumption of merit goods
  • Ensure markets are operating efficiently by discouraging huge price rises for goods with social welfare
  • Allows all farmers and producers to earn a minimum income
  • Ensure there is a minimum standard of quality and reduce the chance of mergers taking place or market power being abused
  • Protect long-term interests of the environment and promote sustainability
  • To ensure firms are making profit without abusing market power

Limits to Government Intervention

Asymmetric Information

Industries provide regulatory bodies with information regarding setting price targets which they must use. Firms want to maximise their profits, hence may provide inaccurate or limited information, making it harder for regulators to set correct targets

This may lead to government failure if regulation or quality standards are not set correctly

Regulatory Capture

The regulator will regular meet with a firm’s employees, developing a relationship and acting more ’empathetic’ towards them. This will weaken their ability to act objectively and regulate properly

Personal connections between the regulators and employees working in the industry would have been formed as it is likely that the regulator would have worked in the sector for several years.

This results in government failure and it can be argued that government regulation is not the most effective method of achieving competition


Quick Fire Questions

1. Identify and explain five aims of Government Intervention (10 marks)

2. Identify two aims of Government Intervention and explain each one in depth (6 marks)

3. Identify and explain two limits to government intervention (8 marks)


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