Question: 3 using the pneumonic PIMMFACED explain some of the

reasons that are regularly used to justify government intervention?

 Types of Economic Systems:
There are four different types of economic systems that are differentiated with each
other according to the way of distribution of resources. These economic systems are:
1. A traditional economic system
2. Command economy
3. Mixed economy
4. Free market economy
Each type of economic system have their own speciality and have weaknesses and
strengths. They are discussed below:
1. A traditional economic system
It is the most ancient type of economic system. Many countries still follows the
traditional economic system and are tend to be rural, that are tied up closely to
land, through farming usually. These countries are from third or second world
countries. Every role in this economic system is specially allocated and these
societies are socially satisfied. However surplus in this economic system is mostly
a rare case and also there is lack of advanced medical and technology system in
this traditional economic system.
2. Command economy
In this type of economics system a large part of economy is controlled by the
centralized power that is “Government”. Therefor the government is involved in
each and every steps of the decision of allocation of the resources. This economy
is very much capable of generating strong supply of resources. Also it granted
awards to the people with price affordability. In this economy, government owns
all critical industries usually like railroad, utilities and aviation. Theoretically it is
possible for the government to provide services and goods at affordable price and
to create jobs for its people. In reality, however mostly command economies focus
on valuable resources like oil. North Korea and china are the examples of the
command economies.
3. Mixed economy
It is the combination of both free market economy and command economy. The
market is almost free from government intervention except some key areas such as
national defence system, transportation system etc. however the government can
also take a part in the private businesses’ regulations. The main motive behind the
mixed economy is to use all the best parts of both the economies i.e. incorporate
the policies that are capitalist and socialist. Ireland is the example of mixed
economy which enjoys a variety of private freedom with the centralized planning
 of the economy that are combined with regulation of the government, Ireland is
the member of the European Union (EU).
4. Free Market Economic System:
In this type of economic system, households and business firms starts acting in
self-interest. They starts controlling that who is going to buy the products, how
resources are going to be allocated and what are the goods that are going to be
produced. This economic system is totally opposite to the command economic
system where governments keeps the profits and control the economy.
Theoretically there is no government intervention in this economic system but
practically a partial involvement of the government is noted. In this economic
system there is a separation between the market and the government. This
prevents the government to become more powerful. Hong Kong, historically
considered to be the part of free market economic system. However there are
multiple problems that leads this economic system to failure. Therefore we are
discussing below that what the problems of free market economic system are and
how government intervention will help in preventing from market failure.

 Government intervention:
Intervention of the government in the market is very important in order to overcome
the market failure. Market failure refers to as the inefficient allocation of services and
goods. The government intervene in order to improve the poor distribution of the
resources. The main aims of the intervention of the government in the market includes
Price stabilization, Provide social welfare, Encourage merit and discourage merit of
services and goods etc. Government intervene in the free market economic system
because as compared to other economic system, free market economic system has
many problems and these problems are remembered as the mnemonic PIMMFACED.
So in order to understand the importance of government intervention we are
discussing the PIMMFACED problems of free economic system and how government
plays a vital role in solving these problems.
1. P-Public Goods: public goods are the goods that are non-rivalrous and non-
excludable which means that each and every individual cannot be excluded
effectively from the use of public goods and also the use of such goods by one
individual doesn’t reduce the availability of the goods to others individuals. Public
goods includes street lightening, national defence, fresh air, lighthouses, flood control
systems, law and order etc. In free economic system these goods are not provided
because these goods are non-profitable and everyone can use them without paying for
these goods (Free-Rider Problem). Therefore Government should intervene and
provide such goods to the individual and government will pay for them as individuals
cannot be restricted from using them and government should pay for them out of
general taxation.
2. I-Inequality: In free market there is no social-security net for those who are
on low income or unemployed. Also it provides unfair advantages and benefits to few
people who have monopoly power and have the advantage of inherited wealth.
Therefore intervention of the government is justified in this scenario too as
government will provide the social-security net for those who have less income or
unemployed. For example: unemployment benefit and minimum incomes for those
who are disabled and sick. This intervention of the government will increases the
economic welfare and will help the individuals to come out of the poverty. Also it
helps in preventing social unrest that arise from the inequalities’ extreme.
3. M-Monopoly: In free market, monopoly can easily progress because free
market is unchecked which means the firms who gain the powers of monopoly are in
a position to exploit the workers and consumers both e.g. set the highest prices of
services and goods for consumers and pays the minimum wages to the worker. This
results the increase in inequality and loss of social welfare. Government intervention
is important in monopoly because the regulations of the government limit the merges,
decreases the prices of goods and services, increases the wages of consumer and thus
increases the efficiency and social welfare of the economy
4. M-Merit Goods: Goods like health and education are not public goods strictly
however most of the time they are referred to as public goods. In free market system
these goods are under-provided because underestimate the importance of going to the
schools. Therefore government should intervene and provide the universal education
system where everyone gets the education and hospitals are also there so that every
individual’s health issues will be sorted.
5. F-Factor Immobility: When it is very difficult for the factors of production
e.g. Capital and Labour to move between the economy’s different areas then factor
mobility occurs. It can be of two types: Occupational mobility and Geographical
mobility.
i. Occupational Immobility: It occurs when moving within different types of
work becomes difficult.
ii. Geographical Immobility: It occurs when moving to one geographical location
to another becomes very difficult.
When there are new technologies are introduced then market starts progressing but
side by side former jobs becomes redundant and new jobs are available in the market
but labours are unskilled to move geographically or occupationally and thus
unemployment increases. In this situation intervention of the government becomes
unavoidable. Government should provide necessary skills and education to the
labours that will help them in finding new jobs opportunities and in adjusting in new
jobs.
6. A-Agriculture:
It is one of the most vulnerable and most difficult sector that leads to the market
failure. In EU and US, agriculture industry is the most subsidised industry. But still
there are many issues that are related to the agriculture sector. These issues are:
i. Prices of this sector is very much volatile and this is because it takes time to
grow most of the crops therefore we can say that in short-term the supply is price
inelastic.
ii. Demand can also be price inelastic. For example: Food is the essential part of
individuals and higher prices never put off people from buying food.
iii. Supply can also dependent on the changes in the climatic conditions.
iv. Also the income of the farmers is very low in this sector. As the economy
expands, then the income of the farmers will not increase because demand elasticity
of the food is low income. So when income rises then people will not spend more on
the food.
Government intervention become most important in order to solve the issues in
agriculture sector. Following are the steps that are taken by the government to address
the issues in agriculture sector:
i. Buffer Stock: In order to stabilise the prices in the market, government
planned a scheme that is known as buffer stock,
ii. Subsidies are offered for the farmers who followed the methods that are
environmental friendly.
iii. Farmers’ basic income is guaranteed via subsidising prices of the food.
However less prices may increase the supply and this will may lead to the waste of the
food.
iv. Tariffs on imports is applied which leads to the increase in the prices of
agricultural products domestically, but it is also directed to the lower trade.
7. C-Cyclical Instability:
The stability of the market is unpredictable i.e. become sometimes highly unstable.
And we cannot establish the stable state of equilibrium such as foreign markets,
agricultural markets and credit markets. Government intervention in such volatile
markets is required in order the problems of Recession in economy and consistent
cyclical unemployment.
8. E-Externalities:
It may be the failure of the producers and the consumers to realise their actions’
effects on third parties. For example; Drivers may not take into the account that the
created congestion in the traffic that definitely time-wasting for others and also
irritated them too. Third parties can be any organization, community or any individual
who may either suffers or get the benefits from the actions of producers and
 consumers. These externalities or side effects may lead to the market failure and thus
intervention of the government is required. Government can provide the goods or
services that affects the third party positively i.e. positive externalities.
9. D-Demerit Goods:
The consumption of the demerit goods like tobacco, alcohol and opiates not only
cause the personal costs but also significant social costing (e.g. crime) is recorded.
People who started consuming these goods ignores their personal benefits and also
ignores the costs of using demerit goods. Therefore government intervention is
required because government will change slowly the behaviour of the consumers after
identifying the demerit goods. Government can starts advertisements against the
demerit goods, imposing higher taxes etc. this will help the government to increase
the life expectancy.

 CONCLUSION:
In the history of mankind, where intervention of the government is absent completely.
Even the most liberal and open minded economists accepted that at some points there
is an extreme need of government intervention because government provides the
public services and goods, provide national defence system, control the prices and
protect the rights of the properties. It is however important to identify that without
government intervention market cannot be stable. But intervention of the government
differs from one market to another.

 Citation:
https://studybay.com/blog/government-intervention-in-ireland/