Government intervention
Topic: Markets, Equilibrium and Government Intervention · NCERT: Class 7, Ch 12 "Understanding Markets"; Class 9, Ch 9 "The Price Puzzle: What Drives the Market"
Meaning
Government intervention is the state regulating markets for fairness, equity and welfare. The main reason for it is market failure, when free markets do not use resources well. The usual causes are public goods, externalities (effects on people outside the sale), monopoly power and poor information. Its tools include price ceilings and floors, taxes, quality standards and independent regulators such as RBI, SEBI, TRAI and CCI.
Too much intervention has its own costs: price distortions, heavy compliance burden and less innovation. This is called government failure.
Example
In March 2020, during COVID-19, masks and sanitisers ran out and there was hoarding and black-marketing. The Centre declared them essential commodities under the Essential Commodities Act 1955 and capped the sanitiser MRP at ₹100 per 200 ml.
Don't confuse with
- Market failure: markets failing on their own is the reason for intervention. Intervention is the government's response, and it can itself fail.