Why is government intervention essential in the functioning of the market?
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The need for government intervention in the functioning of the market arises from the weaknesses of the market system.
- In the free market, every producer aims at profit maximisation. This means that only those goods will be produced that have a high demand. Since it is the better-off sections of the society who have the purchasing power, the market demand neglects the needs of the poor. Hence, government intervention becomes necessary to protect the poor.
- The development process in a free market is guided by profit motive which ignores the long-term projects. Thus projects like irrigation, electricity development, basic and heavy industries, which have a long gestation period and low returns, may be neglected.
- Now with the concept of sustainable development taking shape, and all country's ensuring environmental protection, government needs to regulate the production of those goods which may result in depletion or exhaustion of natural resources.
- The social sectors which provide social benefits like free health and education for all are neglected in an unplanned economy.
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