The consumption of demerit goods like alcohol, tobacco and opiates can cause personal costs and significant social costs (e.g. A well-educated society can improve labour productivity and economic growth. There are also many positive externalities to the rest of society. Government intervention to provide free education can lead to a significant improvement in the quality of life for people who are educated. This leads to an underprovision of health care and education. Merit goods are under-consumed in free-market because people underestimate the personal benefits and/or ignore the external benefits. ![]() Looking after the environment is also a public good, there are an increasing number of areas, where a government is needed to deal with issues such as forest fires, rising sea levels and pressure on water supplies. Governments can provide national defence, law and order and pay for it out of general taxation. Public goods tend not to be provided in a free market because there is no financial incentive for firms to provide goods that people can enjoy for free. This government intervention can also prevent social unrest from extremes of inequality. This increases net economic welfare and enables individuals to escape the worst poverty. Governments can intervene to provide a basic security net – unemployment benefit, minimum income for those who are sick and disabled. This is not due to a meritocracy, but it could be due to unfair advantages of circumstances (inherited wealth, superior education). In a free market, there is likely to be significant inequality and poverty. Environmental regulation and protection.Provide basic health care and education standards. ![]() Main areas of government intervention include: In between, most economists believe it is a question of balance, with the government intervening in areas where the market fails to provide a desirable outcome.
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