16.5 Government Intervention LO 7
Major tools of microeconomic policy include (a) public provision, (b)
redistribution, and (c) regulation.
The costs and benefits of government intervention must be
considered in deciding whether, when, and how much intervention is
appropriate. Among the costs are the direct costs that are incurred by
the government, the costs that are imposed on the parties who are
regulated, and the costs that are imposed on third parties. These costs
are seldom negligible and are often large.
The possibility of government failure, as well as the costs of
successful intervention, must be balanced against the potential
benefits of removing market failure. It is neither possible nor efficient
to correct all market failure; neither is it always efficient to do
nothing.