Question

It has come to light that many coffee brands are wrongly marketed as fair trade by unscrupulous coffee
companies, disguising the low wages paid to bean pickers. Such firms also contribute to groundwater
pollution and deforestation by squeezing coffee farmers who need to cut production cost to make a
living. Use the theories of market failure and government intervention to explain the reasons for this
concern. Identify different suitable government interventions that the Brazilian government may
consider. Critically discuss potential problems with these interventions.

Answer 1

The market failure and Government intervention examines the operation of the economy and prescribes government intervention when markets ‘fail’ on the grounds of either economic efficiency or equity.No human institution is perfect, it is easy to find imperfections or 'failures'. It is even easier if, like the welfare economists, you only concentrate on the economy and do not recognise the effects of the political system on the shape, direction, and rules of the economy. It is also easy to call for government intervention if you have no corresponding theory of how government functions.

On Sep 20, 2019, the Brazilian Federal Government enacted the Federal Law No. 13,874 (Economic Freedom Act) establishing the Declaration of Economic Freedom Rights.The Economic Freedom Act intends to stimulate the economic activity through the reduction of Government intervention in the private activity and it is guided by the following principles: (i) freedom as a guarantee in the exercise of economic activities; (ii) good faith of the private party when dealing with the Government; (iii) the subsidiary and exceptional intervention of the Government in the exercise of economic activities; and (iv) the recognition of the vulnerability of the private party in face of the Government.

In the agreement with the Declaration pf Economic Freedom Rights all entities or individuals have the right to develop low risk economic activities, exclusively through private assets – either owned or legally used from third parties, without the need of any Government approval for liberation of the economic activity.