Business Studies
Respond to the following in a minimum of 175 words:
• Can government intervention in markets sometimes make the situation worse? Provide examples in your response. For example, consider the progress of the economy of Venezuela since 2000
ANSWER
Sometimes when a government intervenes in a market and alters the scales of demand and supply, more harm is achieved than good. This topic has been the basis of discussion for many economists. Government intervention is sometimes warranted like in the instance of the Great Recession but sometimes, it could cause more problems than solutions.
One way this could happen is an inefficient allocation of resources. Most companies supply goods and services for the benefit of profit. When a government steps in, for instance, to provide healthcare, their interest is more of a moral obligation to the citizens rather than a drive for profit. Such could cause laxity and colossal inefficiencies like corruption and bureaucracy. Secondly, government intervention is sometimes politically motivated either based on personal gain or political pressure that could lead to an inefficient outcome. For governments that pride themselves on their ability to promote human rights, government intervention on demand and supply is a limitation to this right. It limits the individual’s decision on how to spend and act. Lastly, the very basic of business rules is that it is determined by the forces of demand and supply. A lot of unpredictable outcomes comes from having a third party into the market who could as well have outlier motives.
The case of the Venezuela economy is fact and logic on why government intervention is a very crucial topic. The Maduro government was responsible for a catastrophic drop of the economy due to poor management of oil production where maintenance and investment were abandoned and corruption and mismanagement took over making the country’s economy one of the poorest in the continent from being the 4th richest country during and after the second world was in terms of GDP.
