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Part of a series on |
Economics |
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Part of a series on |
Economic systems |
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Major types
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A market intervention is a policy or measure that modifies or interferes with a market, typically done in the form of state action, but also by philanthropic and political-action groups. Market interventions can be done for a number of reasons, including as an attempt to correct market failures, [1] or more broadly to promote public interests or protect the interests of specific groups.
Economic interventions can be aimed at a variety of political or economic objectives, including but not limited to promoting economic growth, increasing employment, raising wages, raising or reducing prices, reducing income inequality, managing the money supply and interest rates, or increasing profits. A wide variety of tools can be used to achieve these aims, such as taxes or fines, state owned enterprises, subsidies, or regulations such as price floors and price ceilings.
Price floors impose a barrier upon the minimum price at which a transaction may occur within a market. These can be enforced by the government, as well as by non-governmental groups that are capable of wielding market power.
In contrast to a price floor, a price ceiling establishes a maximum price at which a transactions can occur in a market. A serious issue for price floors as well, but especially for price ceilings, is the emergence of black markets for the good or service in question. [2]
Another possible form of market intervention is a quantity ceiling. This essentially ensures that only a certain quantity of a good or service is produced and traded on a market. An example of such an intervention includes emission permits or credits, whereby some market participants are able to offset their activity by paying other participants to reduce their own quantity.
While theoretically possible, quantity floors end up rarer in practice. Such an intervention insures that the market quantity does not fall below a certain level. This can come in the form of purchasing the marketed product, such as in the case of a jobs guarantee that ensures the utilisation of labour. It can also exist as a legally binding level of producer output also known as a production quota.
Conventionally, taxation is used as a form of revenue generation. However, it has been observed as long ago as the 14th century that taxation can influence trade and suppress economic activity. [3] In practice, this is sometimes seen as a desirable outcome, and taxes are levied with the intention of stymieing or limiting a market.
Economist Arthur Pigou used the concept of externalities developed by Alfred Marshall to suggest that taxes and subsidies should be used to internalise costs that are not fully captured by existing market structures. [4] In his honour, these have been named Pigouvian taxes and subsidies. [5]
A significant but often overlooked form of market intervention is the way that social and institutional norms, conventions, or rules can impact the function of markets. Different methods of "tâtonnement" (finding equilibrium) lead to different outcomes as these methods carry different rigidity, search, and menu costs. Together, these form what are referred to as transaction costs, a concept developed among others by American John Commons and further by English economist Ronald Coase. [6]
An example of Market intervention is the Economy of the US in the 1940s due to war. The war economy of the 1940s caused the United States government to take the lead in economic planning, by putting measures like centralized planning, price control, and rationing. In the post-war context, a large number of states had to resolve the issue of economic recovery, as a result of which the governments were entailed to engage themselves in infrastructure investment, social welfare, and industrial policy. In the post-war period, economists were in search of a way out of the deadlock and to incorporate Keynesian ideas in the classical economic theory, and as a result, the neoclassical synthesis emerged. Keynes' ideas of aggregate demand management were united with classical microeconomic theory by the economists, such as Paul Samuelson and John Hicks. This approach put a focus on the importance of market efficiency and rational behavior.
Market interventions include:
Taxes are also market interventions.
This article is in a state of significant expansion or restructuring. You are welcome to assist in its construction by editing it as well. This template was placed by
Jokojis (
talk ·
contribs). If this article
has not been edited in several days, please remove this template and notify the editor who placed it,
Jokojis. If you are the editor who added this template and you are actively editing, please be sure to replace this template with {{
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This article was
last edited by
Jokojis (
talk |
contribs) 3 seconds ago. (
Update timer) |
Part of a series on |
Economics |
---|
Part of a series on |
Economic systems |
---|
Major types
|
A market intervention is a policy or measure that modifies or interferes with a market, typically done in the form of state action, but also by philanthropic and political-action groups. Market interventions can be done for a number of reasons, including as an attempt to correct market failures, [1] or more broadly to promote public interests or protect the interests of specific groups.
Economic interventions can be aimed at a variety of political or economic objectives, including but not limited to promoting economic growth, increasing employment, raising wages, raising or reducing prices, reducing income inequality, managing the money supply and interest rates, or increasing profits. A wide variety of tools can be used to achieve these aims, such as taxes or fines, state owned enterprises, subsidies, or regulations such as price floors and price ceilings.
Price floors impose a barrier upon the minimum price at which a transaction may occur within a market. These can be enforced by the government, as well as by non-governmental groups that are capable of wielding market power.
In contrast to a price floor, a price ceiling establishes a maximum price at which a transactions can occur in a market. A serious issue for price floors as well, but especially for price ceilings, is the emergence of black markets for the good or service in question. [2]
Another possible form of market intervention is a quantity ceiling. This essentially ensures that only a certain quantity of a good or service is produced and traded on a market. An example of such an intervention includes emission permits or credits, whereby some market participants are able to offset their activity by paying other participants to reduce their own quantity.
While theoretically possible, quantity floors end up rarer in practice. Such an intervention insures that the market quantity does not fall below a certain level. This can come in the form of purchasing the marketed product, such as in the case of a jobs guarantee that ensures the utilisation of labour. It can also exist as a legally binding level of producer output also known as a production quota.
Conventionally, taxation is used as a form of revenue generation. However, it has been observed as long ago as the 14th century that taxation can influence trade and suppress economic activity. [3] In practice, this is sometimes seen as a desirable outcome, and taxes are levied with the intention of stymieing or limiting a market.
Economist Arthur Pigou used the concept of externalities developed by Alfred Marshall to suggest that taxes and subsidies should be used to internalise costs that are not fully captured by existing market structures. [4] In his honour, these have been named Pigouvian taxes and subsidies. [5]
A significant but often overlooked form of market intervention is the way that social and institutional norms, conventions, or rules can impact the function of markets. Different methods of "tâtonnement" (finding equilibrium) lead to different outcomes as these methods carry different rigidity, search, and menu costs. Together, these form what are referred to as transaction costs, a concept developed among others by American John Commons and further by English economist Ronald Coase. [6]
An example of Market intervention is the Economy of the US in the 1940s due to war. The war economy of the 1940s caused the United States government to take the lead in economic planning, by putting measures like centralized planning, price control, and rationing. In the post-war context, a large number of states had to resolve the issue of economic recovery, as a result of which the governments were entailed to engage themselves in infrastructure investment, social welfare, and industrial policy. In the post-war period, economists were in search of a way out of the deadlock and to incorporate Keynesian ideas in the classical economic theory, and as a result, the neoclassical synthesis emerged. Keynes' ideas of aggregate demand management were united with classical microeconomic theory by the economists, such as Paul Samuelson and John Hicks. This approach put a focus on the importance of market efficiency and rational behavior.
Market interventions include:
Taxes are also market interventions.