Reference no: EM132794899

According to the article "How Canada's supply management system works" (https://www.cbc.ca/news/politics/canada-supply-management-explainer-1.4708341), quote: According to the author, the Montreal Economic Institute wrote in a report that: "Supply management hurts all 35 million Canadian consumers by forcing them to pay consistently more for milk, chicken, and eggs, as well as for other products that use these foodstuffs as ingredients." Also, Maxime Bernier, a former leadership candidate of Canada's Conservative Party, wrote his 2018 book "Doing Politics Differently: My Vision for Canada" that Canada's Supply Management "...is a transfer of wealth from the poorest to some of the richest in our society. Farming families working under supply management are indeed far richer than most Canadian families. The average after-tax income of all households in Canada is $69,100. By comparison, the average dairy farming household income is $147,800, and the number is $180,400 for poultry-farming households." These are arguments against supply argument on the grounds of equity or distribution. One may therefore argue that Canadian and provincial governments have intervened in the market for poultry and dairy products on the grounds of equity or distribution (and in a manner to redistribute income into vested interests).

If you read the article, the government seems to be arguing that it has intervened in the market on efficiency grounds. Thus, from the standpoint of the government, there is a market failure or the first welfare theorem does not hold (i.e., the market is not efficient). What kind of market failure or inefficiency is the basis for the government's intervention? Please explain.