> ## Content Index > Fetch the complete content index at: https://www.a-level-economics-tutor.com/llms.txt > Use this file to discover other available public pages before exploring further. # Evaluate Whether the Government Should Intervene in a Market - URL: https://www.a-level-economics-tutor.com/evaluate-whether-the-government-should-intervene-in-a-market/ - Published: 2026-08-12T19:39:57.000Z - Updated: 2026-08-12T19:39:57.000Z - Author: Jaisul Naik - Tags: Model Paragraphs Free market: efficient allocation Free market: inequitable outcomes Intervention: correcting market failure Intervention: risk of government failure One advantage of providing services like bus travel through the free market is that scarce resources are allocated efficiently due to the functions of the price mechanism. This was the argument of Adam Smith who suggested that the free market has an Invisible Hand. A common issue that occurs in markets such as transport and housing is an increase in demand. In a situation where demand increases, this information first gets signalled to producers who might see longer queues for their services. Producers are likely to respond by raising prices. Higher prices lead to a contraction in demand since fewer people are willing and able to pay the higher price for the service. This higher price also causes an expansion in supply due to a greater profit motive incentivising firms to produce more of the service. Eventually, the market reaches a new equilibrium meaning that the excess demand has been rationed. This is at a higher quantity which shows that the market is able to respond well to increases in demand. In comparison, when services like bus travel are provided by the government, an increase in demand can often cause excess demand that does not get resolved. ![Increase in Demand diagram for A-Level Economics](https://storage.ghost.io/c/c4/66/c466eade-2ad5-4613-8010-7a8ffa8c352f/content/images/2026/08/CleanShot-2026-08-09-at-19.53.53@2x.png) One disadvantage of leaving services like bus travel to the free market is that it can lead to inequitable outcomes. When prices increase, the rationing function means that demand contracts in the market. In reality, higher prices mean that some people get priced out of accessing the service. This can apply to those with lower incomes, such as the elderly. This can lead to further issues that the government might have to solve. For example, if elderly people find it more of an inconvenience to travel, they might end up staying home more. This can cause loneliness and put a greater strain on society and the NHS, and it might also lead to them spending less money in the economy. Positive externalities in consumption are when there is a positive impact on a third party from a transaction. The third party refers to anybody apart from the buyer or the seller. For example, when the elderly can safely rely on bus travel, they are likely to go out more often, meaning that they are able to contribute more towards the economy. They are also more likely to be social and active, and therefore less likely to burden the NHS, saving taxpayer money. In a free market, goods like bus travel are under-consumed. This is because the buyer and seller are assumed to be rational and want to maximise their individual utility. As they act out of self-interest, they ignore the positive effect on third parties, such as the reduced burden on the NHS. The diagram shows that at each level of output, marginal social benefit is higher than marginal private benefit. The free market equilibrium is at the point where MPB equals MPC, because this is the level of output that maximises the utility of buyers and sellers. Q\* is the socially optimal output, where social welfare is maximised, because MSC equals MSB. The government can correct this through intervention. They could use subsidies to increase the supply of bus travel and reduce the price, or they could implement state provision which can be set free of charge. ![Positive Externalities in Consumption diagram for A-Level Economics](https://storage.ghost.io/c/c4/66/c466eade-2ad5-4613-8010-7a8ffa8c352f/content/images/2026/08/CleanShot-2026-08-09-at-19.56.34@2x.png) One disadvantage of government intervention will always be a risk of government failure. This is when government intervention ends up reducing social welfare even more. Please note: I would recommend tailoring this paragraph to the question with a relevant example of government failure. You can find worked examples in our posts on [measures to correct negative externalities](https://www.a-level-economics-tutor.com/measures-to-correct-negative-externalities/) and [measures to correct positive externalities](https://www.a-level-economics-tutor.com/measures-to-correct-positive-externalities/). --- ### A-Level Economics Tutoring I offer one-to-one and small group A-Level Economics tutoring for students across the UK and internationally. With 87+ five-star Google reviews and tutoring experience since 2017, I specialise in helping students understand difficult concepts and improve their exam technique. 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