Answer to Question #18582 in Macroeconomics for Sha

Question

Consider the following cases of government intervention: regulations to limit air pollution, income support for the poor, and price regulation of petroleum products. For each case,
(a) Explain the market failure and
(b) Describe a government intervention to treat the problems.

Answer 1

There are negative externalities considered with these 3 cases, that can't be corrected without government regulation.
In first case the market is powerless to control the air pollution, as it is
expensive for producers to use non-polluting technologies, so the government
imposes the limits and taxes to control the air pollution.
In the second case the market is powerless to make support for the
poor, so the government sets the minimal salaries and gives the aid for
poor.
In the third case the prices for petroleum are tended to fluctuate, which can
cause significant shocks either for economy at all, or for ordinary people.
That's why the government regulates the prices for petroleum products.