Theme 1.3 - Market Failure

Question 1

1.4.1 - What is government intervention?

Question 2

1.4.1 - What are the types of government intervention?

Answer 2

• Indirect tax
• Subsidies
• Maximum and minimum prices
• Trade pollution permits
• State provision of public goods
• Provision of information
• Regulation

Question 3

1.4.2 - What is government failure?

Answer 3

When government intervention in the market leads to net welfare loss and a misallocation of resources
Social costs are greater than social benefit

Question 4

1.4.2 - What are the causes of government failure?

Answer 4

• Distortion of government failure - inefficiently allocated resources
• Unintended consequences
• Excessive administrative costs - social costs higher than benefits
• Information gaps - limited information