Financial Intervention To Overcome Market Failure

This clip explains how Governments can use indirect taxes to overcome market failure caused by negative externalities/demerit goods and subsidies to overcome market failure caused by positive externalities/merit goods

Category:

Education

Tags:

• Indirect
• taxes
• Subsidies
• Merit
• goods
• Demerit
• Market
• failure
• Economics
• level
• economics

[BrynJonesOnline]

I agree that government intervention can result in failure. i'm explaining how theory suggests government can overcome the market failure, but it's based on governments having "good" information; with subsidizing ethanol production, they evidently didn't!

[BrynJonesOnline]

You talk a lot of sense and will go far! But you are going way beyond A level standard. Your last question: In most cases of market failure it would be the government that decides what the socially optimum level of output would be and then set the tax(or subsidy) at a level that achieves that level of consumption/output. Remember, this is a general, simplified theory; reality would be much more complicated eg How on earth would the govt know how much tax is needed to reduce output by 10%

[bmay1000]

question: if the free market is being allowed to produce according to demand, how is manipulating the price good for social optimum? are you not advocating a centrally planned type economy? why would a government attempt to control a product that is obviously in demand and therefore signifying a market that is working properly unless that government is attempting to control those very same scarce resources for its own purposes?

[BrynJonesOnline]

The free market produces the amount firms find profitable to do so, BUT, they do so taking account only of PRIVATE costs and not of any EXTERNAL costs their actions might impose on the rest of society (ie the "innocent" third parties). So, the govt puts a tax on the product equal to the external cost so that consumers face a higher price which accounts for the true cost of consuming the good. As the price goes up, fewer people want to buy the good and so output is reduced to the social optimum.

[Thelegend649]

you are an amazing teacher Iv watched so many of ur economics video and they are so easy to understand. Thank youuuuuu so much

[EnglandIndependence]

0:31 Markets cant fail. Only firms can. Keynesian economics is completely deluded!

[eric5335]

There are plenty of cases were government intervention fails. And in such cases it often costs a lot more to correct it. Corn ethanol is a good example of how subsidizing by the government gives about zero benefits for society (corn ethanol takes a lot of energy to produce it). What happens is that government by force transfers the money.

[rebelq1]

Keynsian bogus! Intervention to overcome market failure.

It's government intervention in a market that fouls it up!

[SoSyNiKaL]

Exactly! Glad we're on the same wavelength :)

[selfrealizedexile]

@BrynJonesOnline

Finally, gov't itself has ripple effects in the market. If you study the history of gov't intervention in markets, you will see the abysmal ability of gov'ts to comprehend all their unintended consquences. I could write you a dissertation on just this topic or even of just one industry. And this is the very same gov't you trust to adequately comprehend the ripple effects of externalities?

NO THANKS! :)

[selfrealizedexile]

@BrynJonesOnline

And not only that, but if a 10% reduction would have the net effect they desired.

You see, Socialism failed for two reasons. 1) Centrally-planned economies never adequately comprehend the price system and, therefore, 2) cannot adequately meddle in the markets to achieve the effect they desire because they don't know what they'll get.

It's the equivalent of a toddler performing brain surgery and hoping his slices remove the tumor.

[selfrealizedexile]

How is it that F.A. Hayek predicted the 1929 Great Depression, Ron Paul the 1987 recession, and Peter Schiff the housing bubble and subsequent 2008 recession? They sure as hell weren't Keynesians, but Austrians.

What the man in the video is teaching goes against what Adam Smith taught.

If you want a real laugh, google "History of Keynesian Predictions." They have always been wrong. They believe they can do the impossible; don't buy it. Keep an open mind and question it.