In Brazil, the government is also concerned about the situation explained in question 1. But it has
come to light that many coffee brands are wrongly marketed as fair trade by unscrupulous coffee
companies, disguising the low wages paid to bean pickers. Such firms also contribute to groundwater
pollution and deforestation by squeezing coffee farmers who need to cut production cost to make a
living. Use the theories of market failure and government intervention to explain the reasons for this
concern. Identify different suitable government interventions that the Brazilian government may
consider. Critically discuss potential problems with these interventions.
The coffee companies are hiding the fact of negative externalities that are being caused by the firms activities. These negative externalities are being faced by the third parties who are not directly involved in the economic transactions. Thus, in such case, the market forces do not deliver the efficient outcomes and these coffee firms are overproducing without paying appropriate heeds toward the degrading the standard of environment.
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