Government intervention can increase total welfare when:
A) there are costs or benefits that are external to the market.
B) consumers do not have perfect information about product quality.
C) a high price makes the product unaffordable for most consumers.
D) all of the above
E) A and B only

Question

Quizplus · Accepted Answer

Government intervention can increase total welfare when there are externalities (costs or benefits external to the market) or when consumers lack perfect information about product quality. These situations can lead to market failures, where the market on its own does not allocate resources efficiently. High prices making a product unaffordable is not necessarily a justification for government intervention from an economic welfare perspective, as it does not indicate a market failure in the same way externalities or information asymmetries do.

Government Intervention Can Increase Total Welfare When