1.4.2: Government Failure Flashcards

1
Q

What is government failure?

A

When intervention in the market leads to net welfare loss (and a misallocation of resources).

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2
Q

What are four types of government failure?

A

-Distortion of price signals.
-Unintended consequences.
-Excessive administrative costs.
-Information gaps.

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3
Q

What is distortion of price signals?

A

When the government distorts the free market mechanism by artificially altering these forces (using taxes & subsidies).

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4
Q

What are unintended consequences?

A

When a policy causes effects that the government didn’t intend on.

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5
Q

What are excessive administration costs?

A

When large proportions of subsidies are used up on basic administration costs.

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6
Q

What are information gaps?

A

Decisions that the government makes with limited information.

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7
Q

What is an example of distortion of price signals?

A

Subsidies keep farmers in jobs when they’re inefficient.

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8
Q

What is an example of unintended consequences?

A

Targets for treating NHS patients leads to a reduction of quality of care.

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9
Q

What is an example of excessive administration costs?

A

A lot of money given to the NHS spent on organisational administration.

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10
Q

What is an example of information gaps?

A

Lack of ability to track the amount of cars in the A1.

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