What are the four justifications for government intervention in the economy? Describe two in detail, providing an example of each.

Question

What will be an ideal response?

Answer 1

The four justifications for government intervention are public good provision, market regulation, externalities, and income redistribution. Public goods are those goods that benefit many people at once and are therefore difficult to provide without government, such as national defense. Market regulation occurs when the government sets the basic rules for market competition. Antitrust regulation, for example, gives the government the ability to step in when too much market power is held by one company. Externalities occur when one person's actions in a market provide benefits or impose costs on other people. Pollution is a classic example of a good with a negative externality, and education is a good with a positive externality. Finally, income redistribution is the process of moving income away from wealthy people and toward poorer people, as is done through programs like Social Security, food stamps, and the like, which are funded through tax revenues.