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Three-Barriers-To-International-Trade      When we talk about international trade we mean the exchange of goods and/or services. This exchange usually takes place between two parties from different countries or between two countries located anywhere on the globe. More..

 

Reasons Why Government Intervene In International Trade

The reasons why governments intervene in international trade are usually to correct market failures or distortions, redistribution of income and non-economic objectives.

 

 

 

The Reasons Why Governments Intervene in International Trade:

Market Failures:
Economies usually follow the principles of optimization which state that the marginal benefit should always exceed marginal cost for any discreet change that is made in a policy; and the marginal benefit should be equal to marginal cost for a choice to be optimal.

With properly defined costs and benefits, the principles of optimization have been used to explain behavior throughout the economy. Many firms apply these principles in deciding how to produce in order to be profitable. Consumers apply these principles in deciding how much to consume in order to be satisfied and government apply these principles to decide when and how to intervene in the economy and international trade.

Governments intervene in international trade so that government policies can redirect the economy of a country towards the preferred outcome. That is why it is quite common for governments to levy a tax or introduce a subsidy and this alters the marginal costs or benefits for a business involved in international trade.

Distribution of Income:
In a competitive market, income will accrue to whoever owns the economy’s productive assets in proportion to their productivity. Therefore, the government has a legitimate reason to intervene so that distribution of income and wealth. Sometimes, depending on who controls the government, it can end up enriching the members of the governments themselves rather than the people who deserve it. Government policies are usually designed to shift wealth from some people to others without changing the total resources available.

Changes in policy occur in real time and are usually anticipated by those who they affect. This results in people changing their behavior to avoid adverse consequences of the change.

Non-economic Objectives:
One of the major reasons why governments intervene in international trade is national security. In order survive, all countries have to arrange their defense from military attack and this cannot be left to the private sector because national security is a public good. Therefore, it is quite possible that a government might subsidize defense, wherein the defense establishment is usually operated by the government itself.

 

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Reasons Why Government Intervene In International Trade

 

 

 

 

 

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