Types of Government Intervention - Click on the buttons below to access the information

In the following sections will analyse the impacts of governments intervening in the perspective of the free market. That is to say, when the allocative efficient point in the market is when Demand = Supply (MB=MC) and so the social surplus is maximised (Sum of Producer and Consumer Surplus). It is important to note that this perspective argues that overall, despite the gains by certain stakeholders with the intervention, society as a whole will always be made worse off with this form of intervention. 

The concept of deadweight or welfare loss will be introduced in the following sections and a number of times over the course of microeconomics. Deadweight or welfare loss is the lost economic efficiency and social well-being as a result of the intervention. As we have discussed previously, the allocative efficient point was where MB=MC (i.e. Demand=Supply). As we will see in following video and others, is with government intervention, MB≠MC and one stakeholder is usually made worse off as a result of the intervention compared to the free market level of output. 

However, it should also be noted that this view is in the absence of externalities. These are costs to 3rd parties not involved in the original transaction.  We will look at these later on in the section on Market Failures.