Unit 2.8(3): Government intervention to manage externalities, merit and demerit goods
We know from the previous chapters that externalities, along with merit and demerit goods, lead to market failure. Without any government intervention, resources are misallocated, and the welfare of a country’s citizens is not maximised. Governments intervene when there is market failure to affect resource allocation and improve the welfare of their country's citizens. Governments achieve this by attempting to shift...