Undue variations in income and wealth cannot be tolerated in any decent society. Maximizing social welfare is one of the most common and best understood reasons for government intervention. Inequalities in the Distribution of Income and Wealth, Role and Responsibilities of Business Economists, Causes of Inflation | How to Control Inflation, Factors to be Considered in Planning Factory Building, Importance and Significance of Studying Economics, 5 Methods to determine the value of a Corporation, Weaknesses of Trade Union Movement in India and Suggestion to Strengthen, Audit Planning & Developing an Active Audit Plan – Considerations, Advantages, Good and evil effects of Inflation on Economy, Vouching of Cash Receipts | General Guidelines to Auditors, Audit of Clubs, Hotels & Cinemas in India | Guidelines to Auditors, Depreciation – Meaning, Characteristics, Causes, Objectives, Factors Affecting Depreciation Calculation, Inequality of Income – Causes, Evils or Consequences, Accountlearning | Contents for Management Studies |. These include: Therefore the government may feel there is a case to intervene and stabilise prices. Situations, which call for state intervention, include the following.

Laissez faire economics Hence there is a need for state intervention to protect the interests of the society and to promote real competition. The market is an impersonal agency. The main reasons for policy intervention by the government are: To correct for market failures; To achieve a more equitable distribution of income and wealth; To improve the performance of the economy It is now recognized all over the world (including U.S.A.) that the Government is the only competent agency to set standard business practices. To restrain business from engaging in practices that would be harmful to the public.

But in reality the situation is not so. Only state intervention can remedy this. The exponents i.e. But it is difficult to promote and administer such organizations. With a view to avoid true competition the businessman employed the devices of combinations like mergers and amalgamation, pools and cartels etc., and exploited the society to the maximum possible. The present day market is more complex and in the absence of well-arranged information system business risks cannot be reduced and suitable decisions cannot be taken immediately. Hence, the Government has no other alternative other than to intervene directly into the market and exercise control over it. The need for market information at present is stronger than at any time in the past. But there are occasions when they fail – providing a case for intervention. Various private service organizations are furnishing such information by directly conducting market surveys etc.

Click the OK button, to accept cookies on this website. Provision of Non-market Products and Indivisible Services, 3. Government intervention in the labour market, Advantages and disadvantages of monopolies, Provide producers/farmers with a minimum income, To avoid excessive prices for goods with important social welfare, Discourage demerit goods/encourage merit good, Make demerit goods more expensive. In extreme cases, it can even open domestic market to foreign competition, streamline its own licensing etc. Identify reasons why the government might choose to intervene in markets. By forcing and encouraging individuals to maximize the rate of savings, Government can make available the requisite capital for the establishment and the growth of industries and other sectors of an economy. Inefficiency can take many different forms. Now the public enterprises are also allowed to go to the capital market and they are issuing bonds and debentures.

Subsidies may encourage firms to be inefficient because they can rely on government aid. As the industrial societies mature, this type of legislation is frequently extended to include old age and retirement pensions and health, accident and unemployment insurance. Governments can sometimes intervene in markets to promote other goals, such as national unity and advancement. In India, both voluntary and compulsory savings schemes are formulated to mobilize savings to its optimum level. At Max Price, Demand is greater than supply. They include nation’s defense and related services, price protection, flood control, protection of public monuments, buildings etc. The idea is to keep prices within a target price band. Certain depletable goods, like public parks, aren't owned by an individual. Such a situation will really restrict the movement of resources among alternatives uses, which is undesirable from the competition point of view. Certain controls such as price freezing, allocation or rationing of consumer goods, industrial raw materials, restrictions on foreign exchanges etc: are normally considered as temporary measures to meet the economic problems arising in times of war or during other external emergencies. If supply and demand are very inelastic, then a maximum price may have little adverse impact on creating shortages. In such a situation, the Government and its organisations alone should be called upon to finance such activities particularly in underdeveloped countries and even in the developing economies. To provide correct information to the market participants, and.