Market intervention

{{see also|Price floor|Price ceiling}}

file:European Wheat Prices - A Price Floor Example.jpg

Price floors impose a minimum price at which a transaction may occur within a market. These can be enforced by the government, as well as by non-governmental groups that are capable of wielding market power.

In contrast to a price floor, a price ceiling establishes a maximum price at which a transactions can occur in a market. A serious issue for price floors as well, but especially for price ceilings, is the emergence of black markets for the good or service in question.{{cite journal |last1=Mukherji |first1=Badal |last2=Pattanaik |first2=Prasanta K. |last3=Sundrum |first3=R.M. |title=Rationing, Price Control and Black Marketing |journal=Indian Economic Review |date=April–June 1980 |volume=XV |issue=2 |pages=99–118 |doi=10.1007/s41775-019-00074-1 |url=https://www.jstor.org/stable/41343884 |access-date=27 April 2024 |publisher=University of Delhi |location=Delhi, India |jstor=41343884 |issn=0019-4670|url-access=subscription }}

Another possible form of market intervention is a quantity ceiling. This essentially ensures that only a certain quantity of a good or service is produced and traded on a market. An example of such an intervention includes emission permits or credits, whereby some market participants are able to offset their activity by paying other participants to reduce their own quantity.

While theoretically possible, quantity floors are rarer in practice. Such an intervention ensures that the market quantity does not fall below a certain level. Among other methods, this could be achieved by purchasing the marketed product, such as the case of a jobs guarantee that ensures the utilisation of labour. It can also take the form of a legally binding level of producer output, also known as a production quota.{{Cn|date=July 2024}}

{{see also|Tax|Subsidy}}

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Conventionally, taxation is used as a form of revenue generation. However, it has been observed as long ago as the 14th century that taxation can influence trade and suppress economic activity.{{cite journal |last1=Islahi |first1=Abdul Azim |author1-link=Abdul Azim Islahi |title=IBN KHALDUN'S THEORY OF TAXATION AND ITS RELEVANCE |journal=Turkish Journal of Islamic Economics |date=August 2015 |volume=2 |issue=2 |pages=1–19 |doi=10.15238/tujise.2015.2.2.1-19 |url=https://www.tujise.org/content/6-issues/4-volume-2-issue-2/1-m1/24-64-1-pb.pdf |access-date=25 April 2024 |issn=2148-3809}} In practice, this is sometimes seen as a desirable outcome, and taxes are levied with the intention of stymieing or limiting a market.

Economist Arthur Pigou used the concept of externalities developed by Alfred Marshall to suggest that taxes and subsidies should be used to internalise costs that are not fully captured by existing market structures.{{cite book |last1=Pigou |first1=Arthur |author1-link=Arthur Pigou |title=The Economics of Welfare |date=1932 |publisher=Macmillan |location=London |edition=4th |url=https://oll.libertyfund.org/titles/pigou-the-economics-of-welfare |access-date=25 April 2024 |archive-url=https://archive.org/details/in.ernet.dli.2015.460552 |archive-date=26 January 2017}} In his honour, these have been named Pigouvian taxes and subsidies.{{cite book |last1=Tusak-Loehman |first1=Edna |title=OPTIMAL RESOURCE ALLOCATION AND SOME TECHNIQUES OF OPTIMIZATION |date=August 1970 |publisher=Purdue University}}

{{see also|Property rights (economics)|Contract theory}}

A significant but often overlooked form of market intervention is the way that social and institutional norms, conventions, or rules can impact the function of markets. Different methods of "tâtonnement" (finding equilibrium) lead to different outcomes as these methods carry different rigidity, search, and menu costs. Together, these form what are referred to as transaction costs, a concept developed among others by American John Commons and further by English economist Ronald Coase.{{cite journal |last1=Coase |first1=Ronald H. |author1-link=Ronald Coase |title=The Nature of the Firm |journal=Economica |date=November 1937 |volume=4 |issue=16 |pages=386-405 |doi=10.1111/j.1468-0335.1937.tb00002.x |url=https://onlinelibrary.wiley.com/doi/pdf/10.1111/j.1468-0335.1937.tb00002.x |jstor=2626876 |access-date=27 April 2024 |publisher=LSE |location=London|url-access=subscription }}

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Market interventions include:

• Bailouts pay (usually tax) money to people or organizations in financial difficulty;{{cite journal |last1=Tirole |first1=Jean |title=Overcoming Adverse Selection: How Public Intervention Can Restore Market Functioning |journal=American Economic Review |date=February 2012 |volume=102 |issue=1 |pages=29–59 |doi=10.1257/aer.102.1.29 |url=https://www.aeaweb.org/articles?id=10.1257/aer.102.1.29 |access-date=29 March 2024}} bail-ins transfer organizations from the ownership of their former shareholders to that of their creditors, cancelling the debt.
• Competition laws aim to increase competition and prevent monopoly and oligopoly{{cite journal |last1=Warhurst |first1=Chris |title=The knowledge economy, skills and government labour market intervention |journal=Policy Studies |date=2008 |volume=29 |issue=1 |pages=71–86 |doi=10.1080/01442870701848053 |url=https://www.tandfonline.com/doi/abs/10.1080/01442870701848053 |access-date=29 March 2024 |publisher=Routledge|url-access=subscription }}
• Copyright grants a legal monopoly a creative work in order to encourage their production.{{cite journal |last1=Towse |first1=Ruth |last2=Handke |first2=Christian |last3=Stepan |first3=Paul |author1-link=Ruth Towse |title=THE ECONOMICS OF COPYRIGHT LAW: A STOCKTAKE OF THE LITERATURE |journal=Review of Economic Research on Copyright Issues |date=19 September 2008 |volume=5 |issue=1 |pages=1–22 |url=https://papers.ssrn.com/sol3/papers.cfm?abstract_id=1227762 |access-date=25 April 2024 |publisher=William S. Hein & Company|ssrn=1227762 }}
• Minimum wages create a price floor on labour.{{cite journal |last1=Manning |first1=Alan |author1-link=Alan Manning |editor1-last=Booth |editor1-first=Alison |editor1-link=Alison Booth |title=Monopsony and the Efficiency of Labour Market Interventions |journal=Labour Economics |date=April 2004 |volume=11 |issue=2 |pages=145–163 |doi=10.1016/j.labeco.2003.09.003 |url=https://www.sciencedirect.com/science/article/abs/pii/S0927537103000915 |access-date=25 April 2024 |publisher=Elsevier |issn=0927-5371}}
• Monetary policy, such as currency intervention on the foreign exchange market.{{cite journal |last1=Singh |first1=Sukudhew |title=Emerging Market Perspectives: The Case for Intervention |journal=Finance & Development |date=1 March 2023 |volume=60 |issue=1 |pages=73 |doi=10.5089/9798400233708.022 |url=https://www.imf.org/en/Publications/fandd/issues/2023/03/POV-malaysia-the-case-for-intervention-sukudhew-singh |access-date=25 April 2024 |publisher=International Monetary Fund |issn=0015-1947|url-access=subscription }}
• Nationalization transfers a privately held thing into government ownership
• Non-tariff barriers to trade restrict imports and exports by method other than direct taxes
• Patents are legal monopolies granted on practical inventions
• Privatization transfers a government-held thing into private ownership
• Quantitative easing occurs when the government buys government bonds, raising their price and lowering the return per unit price to people and institutions buying government bonds.
• Regulation bans, limits, or requires some market activities
• Subsidies and market/government incentives pay money to produce some desired change in recipients{{cite journal |last1=Hazell |first1=P. B. R. |last2=Scandizzo |first2=P. L. |title=Market Intervention Policies When Production Is Risky |journal=Journal of Agricultural Economics |date=1975 |volume=57 |issue=4 |pages=641–649 |doi=10.2307/1238882 |jstor=1238882 |url=https://onlinelibrary.wiley.com/doi/abs/10.2307/1238882 |access-date=29 March 2024|url-access=subscription }}
• Cross subsidization and feebates are subsidies funded by a linked tax
• Welfare is government support to individuals, in cash or in kind, often directed at basic needs

• Bank levies are when banks are required to give one-off payments to governments
• Capital levies require people or institutions to pay a one-time taxlike payment, to the government or some institution the government wishes to support; often paid only if above a certain level of wealth

{{see also|List of taxes}}

• Taxes are also market interventions.

• Chinese economic reform
• Command economy
• Crowding out
• Developmentalism
• Development economics
• Dirigisme
• Indicative planning
• Monetary policy
• Palace economy
• Regulatory economics
• Rent-seeking
• Social interventionism

{{reflist}}

1. Durlauf, Steven N., and Lawrence Blume, eds. The New Palgrave Dictionary of Economics. 2nd ed. Basingstoke, Hampshire ; Palgrave Macmillan, 2008.
2. Krugman, Paul. "Cycles of conventional wisdom on economic development." International Affairs 71.4 (1995): 717-732.

Category:Market (economics)

Category:Economic policy