Discuss the extent to which market failure provides sufficient justification for the government to intervene

Market failures which are large and easy to analyze can justify government intervention. A market failure, in theory, can, in most cases, be solved/lessened by government intervention. An example is placing a tax on pollution, which reduces air quality in the town. The problem in reality, though, is the government is not very good at determining the correct course of action. This is because the government will never be as smart as the market. What often tends to happen is that government reduces efficiency further.

This is why we need market failure to be large. A small market failure greatly reduces the chances that government overreacts and causes a greater market inefficiency. The bigger the problem, in general, the less likely you are to make things worse. More importantly, though, the cause and size of the market failure must be easily identifiable. For example, the government must know how much cost the pollution example above costs the town make sure supply accounts for the cost. If the cost is unclear, the chances the government gets it wrong is higher. Another thing to consider is that many problems fix themselves in the long-run. For example, a monopoly might not need to be regulated as competition will eliminate anyways, and the government might just raise barriers to entry, thus stalling the competition.