Government Failure

Question 1

Gov failure

Answer 1

when gov intervention in a market leads to inefficient allocation of resources and market failure

Question 2

Law of unintended consequences

Answer 2

unexpected events occur due to gov intervention
reasons:
inadequate info
conflicting objectives
administrative costs

Question 3

provision of information

Answer 3

• ensures economic units can maximize decisions of consuming and producing goods/services
• gov provides information where private firms fail to do so eg job sector and dangerous products
• gov can give out inaccurate info so decision-making is flawed

Question 4

conflicting objectives

Answer 4

• Means that those who can represent public interest use their position to represent their interest.
• Agreements are made between different parties, so these trade-offs do not give the best decision to be made, leading to ‘second best’ decisions to be made

Question 5

Administrative costs

Answer 5

• means that costs are higher than the benefits during government intervention
• budgets are constrained, mainly in times of recession - decisions on where to spend the money

Question 6

how can gov create market distortion?

Answer 6

gov tries to create incentives and disincentives to influence the behaviours of consumers and producers
helps create a market that would not survive without gov intervention, disturbing the free market,
creates inefficiencies