Question

Consider this statement: “Government involvement in markets is inherently inefficient.” Do you agree or disagree? Explain.

Answer 1

Yes, government intervention in market operation leads to inefficiency in terms of quantity supplied, prices and quantity demanded. Usually government intervenes in tow situation through either price ceiling or price floor

Price ceiling: Here the price in this type of market would be higher, so in order to help consumers government tries to limit maximum price which a supplier can charge which would be less than equilibrium price. For this reduced price, the supplier would supply less of quantity which would increase the shortages in the market

Price Floor: Here the price in this type of market would be lower, so in order to help producers government tries to fix a maximum price which a supplier can charge which would be higher than equilibrium price. For this increased price, the supplier would supply more of quantity which would increase the surplus in the market leading to price crash.
However government intervention is needed in certain highly monopolised areas like public transportation, Medical facilities so that the exploitation of consumers can be avoided. Here though it may affect the market efficiency it will try to maximise the social welfare.