2.7.1—Reasons for government intervention

Governments intervene when markets fail to achieve efficiency, equity, stability or other social objectives.

Externalities, public goods, information gaps, market power and inequality can create a case, but intervention has administrative and unintended costs.

Name the market failure or objective and identify who gains, loses and bears the cost.

A pollution tax targets an external cost; a transfer payment targets income inequality.

A market outcome is not automatically a failure just because it is unequal.

The syllabus reasons are to earn government revenue, support firms, support low-income households, influence production, influence consumption, correct market failure and promote equity. Match the reason to the tool: an indirect tax may raise revenue or discourage consumption; a subsidy may support firms or encourage output; direct provision or a price policy may improve access. Do not assume one intervention serves every objective equally well.