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) 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 production activities that pollute the air and water, as this can harm public health and the environment. Regulations and penalties can help ensure that firms internalize the costs of their pollution and incentivize them to adopt cleaner technologies or reduce emissions. Interventions may also include subsidies for clean energy alternatives. However, interventions are not necessary when consumers are free to buy from a number of different firms, when consumers and firms have good information, or when firms face increasing competition from new entrants into the market, as free market forces can address these issues on their own.

Government Intervention in the Market Is Helpful When