The role of government intervention in economics has become an increasingly pivotal and debated issue. The significance of governmental participation in managing and advancing the three major economic systems—the free market economy, the command economy, and the mixed-market economy, cannot be exaggerated as modern economies continue to face uncommon difficulties, including issues with environmental sustainability, income inequality, public healthcare, etc.

The primary role of government intervention is to maximize a country's social welfare by correcting market failure. In a free-market economy, the forces of supply and demand, with little to no intervention from the government, decide how resources are allocated. A command economy is an economic system in which the government makes all decisions about what to produce, how to produce it, and for whom to produce it. The mixed-market economy can best be described as a partnership between the private and public sector, the government has a part in regulating economic activity, but the producers and consumers are still free to make their own decisions about production and consumption.The government may also step in to provide public goods and services, regulate the market, and redistribute income. Throughout the years, most countries have altered to a mixed-market economy even though they have proven to be inefficient at times. This raises the question ‘to what extent is government intervention in the economy needed/necessary?’. Government intervention in an economy should only take place in order to address externalities, support sustainable development, promote equity and to provide support during an economic crisis.

Government intervention is crucial in order to address negative externalities, which arise when the production or consumption of goods or services creates costs that are not carried by the producer or consumer but impact society as a whole. Cigarette tax, which is used to lessen the harmful effects related to smoking, is an excellent example of this. According to an article by ‘Gates Open Research’, increasing the price of cigarettes by 10 Indian Rupees plus 10% according to value in four Indian states would result in around one and a half million men quitting smoking in those 4 states and it could lead to around 665,000 deaths being avoided. The additional tax revenue collected could be used towards savings to the AB-PMJAY, which aims to provide financial protection and access to quality healthcare for India's economically disadvantaged population. Market forces by themselves wouldn't be able to address the harmful effects of smoking on society without such government intervention.

The labor market is a crucial area in which government intervention in the economy is required, particularly through the imposition of a price floor in the form of a minimum wage. A minimum wage is the lowest possible wage permitted by law that employers must pay their workers. To promote equity and lessen income inequality, government intervention through minimum wage
policies is essential to guarantee that workers receive a reasonable share of the revenue generated by their labor. For example, the Ontario government announced its decision to raise the province's minimum wage to $15 per hour, effective January 1, 2023 and this wage increase is expected to benefit approximately 760,000 workers across the province. The government aims to improve the living standards of low-income workers and help them to better cope with the rising cost of living. Therefore, while also taking into account potential negative effects on employment, government intervention in the form of a price floor on minimum wage is required to support fairness and equity in the labor market.

Another area where government intervention in the economy is needed is to support sustainable development, with Germany's Renewable Energy Act (Erneuerbare-Energien-Gesetz, EEG) serving as a prime example. A central policy instrument, the EEG seeks to reduce greenhouse gas emissions, raise the amount of renewable energy in Germany's power supply, and lessen the country's reliance on fossil fuels. Their goal is producing 65% of the country's electricity from clean sources by 2030. Feed-in tariffs and feed-in premiums for electricity produced from renewable energy sources were established. By guaranteeing a set price for the electricity generated by renewable energy producers, these systems offer financial incentives and investment security. Germany has made significant progress towards achieving its energy transition goals as a result of the EEG's successful implementation, highlighting the critical role that government involvement plays in directing and assisting the transition towards a more sustainable and inclusive economy, as depending only on market forces might not be sufficient to address the complex, challenges associated with sustainable development.

Lastly, In times of economic crisis, like the COVID-19 pandemic, which caused unprecedented disruptions to global economic activity, government intervention in the economy is crucial and necessary. As shown by the International Monetary Fund (IMF) in their thorough database of policy responses to the COVID-19 pandemic, governments all over the world adopted extensive measures in response to these difficulties to avert economic collapse, maintain financial markets, and support businesses and households. To maintain consumer spending and support businesses, governments implemented a variety of fiscal policies, such as direct cash transfers, wage subsidies, unemployment benefits, and tax relief. As the pandemic started to abate, government intervention was crucial in preventing a more severe economic downturn and assuring a quicker recovery. Market forces alone could prove to be inadequate to counteract the negative effects during economic crises', resulting in more serious and long-lasting consequences.

Even though some might contend that government intervention could have a negative impact on the economy, there are several factors that highlight the inefficiencies inherent in a free market economy. Take for example the California energy crisis of 2000-2001, caused by a combination of factors, including a shortage of electricity supply, increased demand for energy, and price volatility. The energy crisis revealed the limitations of a free market approach as it led to market
manipulation, soaring electricity prices, and widespread public outrage. Government intervention helped to stabilize the market and guarantee more affordable energy for consumers through the creation of new regulations, oversight procedures, and infrastructure investments. This illustration demonstrates that, even though a free market economy can be advantageous in some circumstances, intervention by the government may be required to resolve market failures and safeguard the interests of consumers and society at large.

To conclude, it has been proven that too little or no government intervention at all can lead to multiple inefficiencies. In a mixed-market economy, the government is able to address market failures and safeguard the interests of consumers and society at large while allowing market forces to drive economic growth. Thus, a mixed-market where the government only intervenes in order to address externalities, support sustainable development, promote equity and to provide support during an economic crisis, is the best outcome for the economy and society.
Works Cited

Team, Wallstreetmojo. "Government Intervention". Wallstreetmojo, 2023,

wallstreetmojo.com/government-intervention/#:~:text=What%20Is%20Government %20Intervention%3F,welfare%20by%20correcting%20market%20failure. Accessed 30 Mar. 2023.

"How Governments Influence Markets". Investopedia, 2023,

investopedia.com/articles/economics/11/how-governments-influence-markets.asp#: ~:text=Governments%20can%20create%20subsidies%2C%20taxing,stymie%20businesses%2 0or%20entire%20industries. Accessed 30 Mar. 2023.

"Germany's Renewables Energy Act – Policies - IEA". IEA, 2023, iea.org/policies/12392-germanys-renewables-energy-act. Accessed 30 Mar. 2023.

Wu, Daphne C et al. “Impact of cigarette tax increase on health and financing outcomes in four Indian states.” Gates open research vol. 4 49. 11 May. 2020, doi:10.12688/gatesopenres.13127.1 Accessed 30 Mar. 2023.

"Ontario Will Boost Minimum Wage To $15 In 2022, Ford Says | CBC News". CBC, 2023,

cbc.ca/news/canada/toronto/ontario-minimum-wage-hike-fifteen-dollars-1.6233521# :~:text=1356-,The%20Ontario%20government%20will%20raise%20the%20province's%20minim um%20wage%20to,760%2C000%20people%20across%20the%20province. Accessed 30 Mar. 2023.

Tragakes, Ellie. Economics for the IB Diploma. Cambridge University Press, 2020. Accessed 30 Mar. 2023.

"Mixed Economic System: Characteristics, Examples, Pros & Cons". Investopedia, 2023, investopedia.com/terms/m/mixed-economic-system.asp. Accessed 30 Mar. 2023.

“Policy Responses to covid19.” IMF, 20 Mar. 2020, imf.org/en/Topics/imf-and-covid19/Policy-Responses-to-COVID-19. Accessed 30 Mar. 2023.

" Subsequent Events-California's Energy Crisis ". Eia.Gov, 2023, eia.gov/electricity/policies/legislation/california/subsequentevents.html. Accessed 30 Mar. 2023.

OpenAI. ChatGPT. chat.openai.com/. Accessed 30 Mar. 2023.