Economic intervention, is when a government gets involved in the economy of the country to improve economic growth. In a free market, everything works through price signals. When there is demand for a product or service, the profit that can be made is high and this will also lead to more supply as profit potential is higher. Laissez-faire economics see economic intervention by the government as harmful because of the fallacy of central planning.
Some of the advantages of a free market that is highlighted are that there is competition in the market. When there is competition the consumer will have access to the best quality product at the best price. Another advantage is the power to choose how you want to spend your income. And also another important advantage to consider is that in a free market, individuals gets the opportunity to develop their entrepreneurial abilities.
Some disadvantages of a free market system are that there is not provision made for merit goods such as education, basic health care and housing. Another major disadvantage is that harmful goods can be produced that is not regulated by the government because the government are not involved in the certain market. And also a free market can get monopolistic.
Some reasons that are given to why governments intervene are: firstly to help improve the economic growth of the country, secondly to ensure more equal income distribution between citizens and lastly to correct where the market has failed to do so on its own.
When government intervention is not present in all markets it will lead to problems. When only a certain market receives financial support from the government will again be a source of market failure. And also the taxation on certain products being more than others, will also lead to unhappy consumers in a certain market.
Finally we can conclude that in a free market, prices will regulate themselves. But this not necessarily in the best interest of the consumer even though it is in the best interest of the company. Government intervention is indeed necessary to ensure that products are regulated and no harmful things are produced. When the government is intervening in the economy, there can at least be made provision for merit goods such as education, health care and housing. Government intervention is also needed in certain markets that needs financial support. Consequently, all countries which use a free market form of economy also impose some level of regulation upon it. The level of government intervention in a free market economy varies from country to country, but all countries employ some form of regulation. Thus the state should take the lead to ensure economic growth and development. Riskbusters Author: L van Zyl