Government failure

Question 1

Why can government intervention in the market create government failure?

Answer 1

It could lead to a less efficient allocation of resources and therefore make the situation worse

Question 2

What loss creates government failure?

Answer 2

A net social welfare loss

Question 3

If the costs of government intervention to correct market failure exceed the benefits then what happens?

Answer 3

Government failure

Question 4

Give two examples of unintended consequences

Answer 4

.Bank bail-outs
.Bio-fuel subsidy
.Import tariffs
.Targets for treating patients

Question 5

Give two examples of regulatory failure

Answer 5

.Regulators may limit innovation in fast growing markets
.Regulation becomes bureaucratic and costly
.Regulator might be behind the curve with new technologies

Question 6

What do free market economists believe

Answer 6

.They’re distrustful of intervention, they also believe that the price mechanism should be given freedom to operate

Question 7

When is government failure most likely to occur?

Answer 7

When the decisions are made in the vested interest of special interest groups