To pinpoint our understanding of the question we must first recognize the meaning and definition of government intervention. Government intervention is the immersion of the government in the market in terms of the alteration, modification, implementation, regulation, and monitoring of the situation the market is in making sure it is in a healthy position with no leeway for any negative externalities or abnormalities. Government intervention can also be used to prosper a suffering market and encourage a new scheme of operations. A free market economy is a system based purely on supply and demand with a mutual agreement on price between both parties, the producer and the consumer, with the government having little to no influence or control …show more content…
A prime example of a market failure is the existence of a monopoly in the market where one large firm controls a major part of the market share ergo enabling it to exercise its power as a market leader whichever way it deems fit as it would be extremely difficult for new firms to enter and compete in the market, and consumers would be extremely restricted in terms of choice due to the domination of a single firm, in this case government intervention is needed and welcomed as a subsidy to new firms entering the market could ease the initial cost entry. In terms of the housing market there are many market failures that ensue with one of the biggest ones being homelessness as this causes an influx of empty houses but filled up streets thus also leading to a grim social and economical inequality due the disparity of income and status. Homelessness also leads to many other socio-economic downfalls such as increased drug usage, an increase in crime rates, and an increased incarceration rate. Another massive market failure in the housing market is the view of housing as a merit good with a large profit margin rather than a human necessity and a requirement for preservation of individual dignity, this leads to a large social cost and lose of welfare while simply filling the pockets of wealthy …show more content…
I believe in this case the government must intervene in the housing market see as how much of an importance housing in of itself is to human self-fulfillment. There are many ways and types of intervention the government can undertake, one of them being the introduction of indirect taxes to attempt to eliminate negative externalities and equal the marginal social cost of production to the marginal social benefit, the use of VAT or sales tax on the purchases of housing can be used a method of collecting indirect