government failure

Question 1

what is government failure

Answer 1

Government failure is when the government intervenes in the market and fails to allocate resources causing inefficient allocation of resources in society. Reducing overall economic welfare.

Question 2

causes of government failure
distortion of price signals

Answer 2

government intervention such as price controls /subsidies can distort the market

Question 3

causes of government failure
unintended consequences

Answer 3

when government intervenes in the market leading to new problems arising from it .
such as cash transfer programme which aimed to reduce poverty but incentivised people not to work ( labour supply shifts inwards)

Question 4

causes of government failure
imperfect information

Answer 4

where to set the price ?
what and how much by to set policies
lack accurate data

Question 5

Government failure in agriculture

Answer 5

• minimum price
• subsidies
  (lead to overproduction - more waste) (excess production of corn in states)

Question 6

Government failure in housing

Answer 6

• rent controls lead to shortages , low investment and deteriorating housing conditions

Question 7

cause of gov failure is regulatory capture

Answer 7

• operates in favour of producers

Question 8

indirect tax

Answer 8

tax on a good and services rather than on income or profit

Question 9

indirect tax and market failure

Answer 9

• measurement of the size of a tax.
• impacts low-income more compared to other taxes such as VAT which imposes more on luxury goods
• unintended consequences that produce more inefficient outcomes e.g sub to more demerit good