Government Failure

Question 1

Government failure

Answer 1

Policies that cause a deeper market failure. Government failure may range from the trivial, when intervention is merely ineffective, to cases where intervention produces new and more serious problems that did not exist before.

Question 2

Net welfare loss

Answer 2

An overall loss of economic welfare when compared to the starting position.

Question 3

Regulatory capture

Answer 3

A form of government failure, happens when a government agency operates in favour of producers rather than consumers.

Question 4

Unintended consequences

Answer 4

A cause of government failure whereby the government’s actions result in unexpected effects. For example, in the 1960s the government cut spending on railway infrastructure and built roads instead. This caused a significant rise in car transport, which in turn has led to a rise in the demand for trains because the roads are so congested.