As a function of government in a modern market economy, how might a government respond to a market failure

The correct answer is: "the government intervenes to restore the market equilibrium and the growth trends"

For example, imagine the scenario of a supply shock. If there is a supply shock in the markets, the amount supplied by producers is decreased suddenly and abruptly. Therefore, the total output produced is located below the equilibrium price and the desires of producers and consumers no longer match. In fact, there is an excess of demand. The market does not provide an efficient distribution of the products and not all consumers who demand the product will be able to purchase it, therefore there is a market failure.

Prices will automatically start to rise and, some customers would not be able to acquire the products at such price. Imagine it is a first-need commodity. Then, the goverment in a mixed market economy can consider to intervene in order to restore the equilibrium, so that everybody has access to the good at a fair price. For instance, the goverment can subsidy producers to compensate for the supply shock.

Therefore, goverments in mixed market economies intervene when the markets alone do not yield fair outcomes.

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