Under a free market system, the task of achieving the most desired economic or social outcomes is relatively complex. Therefore, government intervention is required for an ethical and financial balance. Government becomes a crucial facet of running an efficient economy, as when it fails to do so, the disastrous result is market failure. Markets alone decide the demand and supply required for equilibrium. However, this is partially based on private economic interests failing to regard social factors. The main responsibility of the government during intervention includes reallocating resources, redistributing income, as well as stabilising the economy. .
Reallocation of resources is achieved for the purpose of directing resources for more desired outcomes of goods or services. This is an effective use of resources when they are scarce. With free markets, there is also a potential failure to provide necessary goods and services since they might not be provided by the private sector. Examples of these goods includes national defense, or street lighting. In addition, merit goods are sufficiently provided by the government since they're not produced in adequate quantities by the government, including health care and arts. The government lacks the incentive to produce profits; it provides the substantial but basic infrastructure such as railways and roads, through efficient allocation of resources. Intervention for resources can proceed through fluctuations in taxation and spending. When increasing taxation on certain goods, the resources can be diverted to making other products. For example, taxing cigarettes allows funds to be used for health care and other programs. The government can use its revenue to direct, reallocate resources, or influence the decision of consumers by proving grants and subsidies. The government uses its available resources to provide these necessities or opportunities, benefitting the whole community.
