Microeconomics - Government failure Flashcards
1
Q
Causes of government failure
A
Distortion of price signals - subsidies could distort price signals by distorting the free market mechanism. There could be inefficient allocation of resources because the market mechanism isn’t able to act freely. (e.g. an industry which is failing)
Unintended consequences - actions of prod or cons have unintended consequences from gov policy.
Excessive administrative costs - The social benefits of a policy might not be worth the financial cost of administering
the policy. It might cost more than the government anticipated.
Information gaps - Some policies might be decided without perfect information. This might require a full
cost-benefit analysis, and it could be time-consuming and expensive.
