Chapter 21 Flashcards
What is government failure?
When the government intervention leads to a net loss of welfare
What are the types of government failure?
Distortion of price signal
Unintended consequences
Excessive administrative costs
Information Gaps
Conflicting Objectives
When Politicians maximize their own welfare.
What is the Distortion of the price signal?
Changes in price signals due to government intervention
What are Unintended consequences?
Government creates unintended consequences e.g higher prices
What are Excessive administrative costs?
When the cost is so large that cost> welfare gainged
What are Information Gaps?
Governments may not process complete information so make the wrong policy
What are Conflicting Objectives?
When a government has 2 contradicting objectives. Cut taxes while increasing defence budget
What happens when politicians act to maximize their own welfare?
Politicians make the wrong policies as they act to maximise their own welfare over the welfare of the public.
