Question

Explicate four benefits and costs of government intervention in international trade

Answer 1

The government intervention in international markets has various benefits and drawbacks.

Benefits of government intervention in international trade:-

• The government intervention generates revenues and subsidies to help the business to become highly competent in the international trade.
• It opens up fair trade and equal opportunities among the competing nation's.
• It prevents the businesses from performing illegal activities and from doing things that create negative externalities.
• It protects consumer's and investor's from the abuses by businesses.

Costs of government intervention in international trade:-

• With the government intervention in the international trade, the producers are no longer free to produce as much as they want and they are not free to set prices with their wish.
• There is an asymmetry in information available during an international trade when the government intervenes.
• The market's taking part in the trade are no longer free to react to the environment and the behaviour caused by the environmenal changes.
• Government intervention leads to Higher price's and lowers economic efficiency.