Market Failure and the Efficiency Case for State Intervention

Micro - Government Intervention in Markets

In this course, Dr Toke Aidt (University of Cambridge) explores the microeconomics topic of government intervention. In the first module, we look at what markets look like when they efficiently allocate resources, how this can fail and the case for government intervention when this happens. After this, we explore what role the government plays in a market economy and some of the other reasons for state intervention. Then, we focus in on taxation. In the penultimate module, we explore the deadweight cost of taxation and the equity-efficiency trade off. In the final module, we look at how the government goes about regulating negative externalities.

Market Failure and the Efficiency Case for State Intervention

In this module, we look at what markets look like when they efficiently allocate resources, how this can fail and the case for government intervention when this happens. In particular, we will focus on: (i) a review of how efficient markets allocate resources, with use of a diagram to show consumer and producer surplus and an explanation of the term Pareto efficiency; and (ii) what happens when markets fail, including a discussion of the types of market distortions and a diagram to show what happens to consumer and produce surplus in a situation of market failure.