Why might the government intervene in a mixed economy?

• A. Markets never fail.
• B. To correct externalities and provide public goods.
• C. To maximize private profit.
• D. To replace private sector completely.

Answer: (B)

When markets fail, government intervention helps correct externalities and provide public goods. Externalities occur when the actions of individuals or firms affect others who aren’t part of the market transaction, leading to too much pollution or too little investment in beneficial activities like education or vaccination. Public goods are things everyone can use without reducing others’ use (non-excludable and non-rivalrous), so private markets often under-provide them because people can free-ride. The government can tax, regulate, subsidize, or directly provide these goods to raise welfare and allocate resources more efficiently.

Markets can fail, so the view that the government should step in to fix externalities and provide public goods is the strongest reason for intervention. The other options don’t fit: intervention isn’t about always maximizing private profit, and in a mixed economy the government does not aim to replace the private sector entirely.