1. Government’s role in fixing/manipulating and failing markets!
What’s the breadth of government intervention and what can the government do to promote and/or curtail ‘animal spirits’

2. What governments want to do/ need to do
Regulate imperfect markets, not take-over, using a suite of tools/instruments to stop bad things from happening:
Price controls – intervention in gas and electricity markets
Setting of quality standards – placing ‘in law’ minimum thresholds of conduct or product quality
Performance targets – for example for railway franchises
Controlling of mergers and acquisitions via CMA
Or, regulate imperfect markets using a suite of tools/instruments to promote things to happen:
Small business support/ nurturing new industries
Deregulation of certain markets
Competitive tendering
Privatisation
Why bother? Reduction of imperfection(s) resulting in:
More equitable prices in society
Reduce excessive profits but continue to nurture innovation
Improve contestability
Improve efficiency – either productive or allocative in an industry/society
Improve quality of products for consumption
Improve level of choice in the market / improve standards
Risks – asymmetric information favours firms and/or regulatory capture

3. Nice summary of interventions here
Options
Price controls set to where P=MC in the market resulting in allocative efficiency. Often used in once-privatised industries like water or the railways or postal services.
Governments can set profit controls and regulation as well. Commonly known as ‘rate of return’ it is basically a profit cap on firms. Not common in UK but an option nevertheless.
Maintaining quality of services also a regulation placed upon some businesses
Performance targets
Breaking up of monopolist as in BT
Lowering entry barriers, regulation and financial constraints to stimulate competition
Windfall taxes
Privatisation vs nationalisation
Deregulation (withdrawal)
Subsidies
Self-regulation and codes of practice
Controlling/ authorising of mergers and acquisitions
Nice summary of interventions here

4. Promoting small business growth – tax incentives and subsidies, grants, seed-funding
Legislate against anti-competitive practices – laws, prosecutions and fines
Deregulate and withdraw
Lower barriers to entry – guaranteed/backed loans, grants/burseries, free training courses
Competitive tendering / contracting out – NHS, Defence capital/equipment
Privatisation

5. So what’s the best outcome for government?
Pareto efficiency is the ideal model but unobtainable: P=MC in all markets
if market failure is a constant then what’s the answer?
Theory of second best applied in the real world
Policies that promote marginal net welfare gains in different market structures is probably the answer….not trying to make all markets the same…
Government needs to arm itself with wide array of tools to achieve this – some blunt, some subtle, mostly practical solutions
Eliminating/ mitigating distortions is the name of the game!

6. Example of the array of tools used by government – labour markets in the UK
What’s it done? ‘hard’ and ‘soft’ policies
Minimum wages – NMW & living wage
Minimum wages – London living wage and living wage foundation….
Maximum wage setting - public sector
Maximum wage setting – private sector?
Zero hours contracts – good or bad? Sports Direct vs Uber
Public Sector wage setting for and against
Reducing labour immobility through education and skills development and alternative pathways not as easy as it seems….
Retirement – I’m tired already…..
Migration – from Windrush to EUUK today
Legislating against wage inequality
Policies to promote reduction in wage inequity……?

7. Typical exam-style questions for section B of Paper 1 using the information above as a guide
Explain why some people believe zero hours contract might be a good thing for the UK economy (5 marks)
Assess two factors that might affect help governments reduce imperfections in the economy (8 marks)
Assess the likely affects of governments intervening in a market to regulate market imperfections (10marks)
Discuss the options open to government in reducing market imperfections (12marks)
Discuss the possible policies governments may adopt to reduce imperfections in labour markets and their impacts (15 marks)
Section B from Paper 1
Evaluate the likely consequences of continued and aggressive government intervention on imperfect markets or should they not simply adopt a policy of withdrawal and let the market naturally self adjust? (25marks)
Section C from Paper 1