Government Failure

Question 1

Government failure occurs when?

Answer 1

When an intervention causes a deeper market failure or a new failure will emerge.

Question 2

Intervention causes?

Answer 2

Further inefficiencies,miss allocation of resources and loss of economic and social welfare (health,happiness & fortune)

Question 3

Impact of policies?

Answer 3

1. Polices may have damaging long term consequences
2. Policies may be ineffective in meeting their aims
3. Polices may create increase inequalities of income and wealth

Question 4

Government failure can occur when?

Answer 4

Policies fail to create enough incentive to change a person’s behavior .

Question 5

Causes of government failure?

Answer 5

1. Political self interest/lobbying
2. Quick fixes not long term solutions
3. Regulatory failures (Form of government failure)
4. Lack of expertise in government
5. Disincentive effects and creation of shadow markets
6. Enforcement costs may outweigh any of the benefits
7. Intervention may conflict with other objectives

Question 6

Political self interest

Answer 6

Government policy can be unduly influenced by influential political lobbying.

Question 7

Regulatory failures (Form of government failure)

Answer 7

1. Regulators may limit innovation in fast growth markets
2. May lack the powers to effective in protecting consumers
3. Capping prices may prevent new firms from entering the market
4. Frequent rule change can stifle capital investment

Question 8

Define the law of unintended consequences

Answer 8

Actions of consumers, producers & government, always have effects that are unanticipated or “unintended”.