3.1.17 one example of a government intervention in markets that unintentionally leads to a decrease in one of allocative, productive, dynamic or inter temporal efficiency

Question 1

what is government failure

Answer 1

Government failure describes where government intervention fails to improve the allocation of
resources when compared to a free competition market outcomes.

-generally happens when there was no need for the government to intervene

Question 2

how do government subsidies lead to market failure

Answer 2

However, these can distort markets and lead to excessive resource allocation to certain
industries, such as fossil fuels, at the expense of others.
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Subsidies lead to a greater volume of production in the industry than what may have
happened in a free market → makes all goods and services artificially cheap and
therefore encourages more consumption of goods and services, which might not be
ecologically sustainable (intertemporally inefficient).