By enforcing regulations and market-controlling norms, the government has a duty to be a buffer for consumers and market. Pettinger, 2019, states that a market failure can be caused by insufficient allocations of resources within a free market. A variety of tools can be used by the government to correct a market problem. The first step is to set price ceilings and floor. This is where the price floor refers to the lowest price product may sell, and the ceiling the highest possible price (Pettinger 2019). The government could, for instance, establish a salary ceiling to ensure workers receive adequate wages to meet basic necessities, while taking inflation into account. To ensure that staple foods remain affordable, the government might impose price caps to limit the sale of certain goods. To correct market problems, the government might also use subsidies and correctional taxes. The government may impose taxes on negative activities while encouraging those with positive externalities. In situations where the government wants to control factors like pollution, this strategy can be very useful. Businesses are taxed based upon their environmental impact. Subsidies might also be offered to tax-subvention eligible organizations who contribute positively to their community. Trondly, tax subsidies may be offered to organizations that contribute positively to the community. Third, the government might use tradable licences. This allows for monopolistic features to be enabled to any organization which has the potential of meeting the total demand. If a monopoly is unable to meet its predetermined expectations the government can introduce alternatives. The government might use controls and orders to control a market where certain activities are limited or restricted. The government could, for example, restrict or grant special licensing to specific businesses if charcoal manufacturing is deforestation.
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