Government intervention in the market is helpful when:
A) consumers are free to buy from a number of different firms.
B) consumers and firms have good information.
C) firms face increasing competition from new entrants into the market.
D) business firms engage in production activities that pollute the air and water.

Question

Quizplus · Accepted Answer

Government intervention in the market is helpful when firms engage in harmful activities such as polluting the air and water. This is because these negative externalities impose costs on society that are not reflected in the market price. The government can intervene through regulations, taxes or subsidies to ensure that firms internalize these costs and produce goods and services in a more socially efficient manner. For the other options, market competition is generally more efficient when consumers have choice and firms have good information, and the government's role is often to ensure a level playing field and prevent anti-competitive behavior.

Government Intervention in the Market Is Helpful When