An overall loss of economic welfare when compared to the starting position
Regulatory Capture
A form of government failure where a government agency operates in favour of firms rather than consumers
Unintended Consequences
A cause of government failure whereby the government’s actions result in unexpected effects eg. spending on roads instead of railways has led to congestion
Types of Government Failure
-High administration or enforcement costs
-Information Failure
-Unintended consequences
-Regulatory capture
Information Failure
Inaccurate valuation of externalities may lead to the policy being ineffective as the right level of the policy is not used eg. indirect tax
Administration and Enforcement
Regulation, subsidies, state provision of goods and price controls may have a high opportunity cost
Unintended Consequences
Black markets, income inequality due to minimum prices, impact on firms and consumers and employment due to intervention
Government Failure
When government intervention in the market leads to a net welfare loss and misallocation of resources
