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Government intervention is always deemed beneficial, ensuring market equilibrium in the model.

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Solution

The statement is not entirely accurate. While government intervention can sometimes help to correct market failures and promote economic stability, it is not always beneficial and does not always ensure market equilibrium. Here's why:

  1. Understanding Market Equilibrium: Market equilibrium is a state in which the supply of an item is equal to its demand, resulting in a stable price. In a perfectly competitive market, this equilibrium is naturally achieved through the interaction of buyers and sellers.

  2. Understanding Government Intervention: Government intervention in the economy can take many forms, including regulations, taxes, subsidies, and public provision of goods and services. The government may intervene to correct market failures (like externalities or public goods), to promote equity, or to stabilize the economy.

  3. Potential Benefits of Government Intervention: When markets fail to allocate resources efficiently or equitably, government intervention can potentially improve outcomes. For example, the government can tax negative externalities (like pollution) to reduce their occurrence, or provide public goods (like roads or parks) that the market would under-provide.

  4. Potential Downsides of Government Intervention: However, government intervention can also have downsides. It can lead to inefficiencies if it distorts market incentives, or if the government lacks the necessary information to make optimal decisions. It can also lead to unintended consequences, like black markets or rent-seeking behavior.

  5. Why the Statement is Not Entirely Accurate: Therefore, while government intervention can sometimes help to achieve market equilibrium or improve market outcomes, it is not always beneficial and does not always ensure market equilibrium. The effectiveness of government intervention depends on the specific circumstances and how well the intervention is designed and implemented.

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