3.8.9 Government failure

• What is the definition of government failure?

  Worse outcome than free market
• Careful policy planning and evaluation are essential to prevent government failure.


  True
• Unintended consequences of government interventions can worsen the original problem
• Policy-makers may be driven by political motivations rather than maximizing market efficiency
• What is the term for the costs associated with designing, implementing, and enforcing policies?

  Administrative costs
• What is highlighted by the causes of government failure in policy planning and evaluation?

  Careful policy planning
• Agricultural subsidies can lead to overproduction and distorted market prices
• What is one consequence of government failure related to resource allocation?

  Worsens resource allocation
• Government failure results in higher costs and reduced efficiency
• Compare the consequences of government failure with market failure:

  1️⃣ Government intervention worsens resource allocation, while market forces fail to allocate resources efficiently.

  2️⃣ Government failure can lead to over or underproduction, whereas market failure also leads to under or overproduction.

  3️⃣ Government failure results in higher costs and reduced efficiency, while market failure does not inherently increase costs or reduce efficiency.

  4️⃣ Government failure stifles innovation and technological progress, whereas market failure does not directly impede innovation.
• Government failure can stem from imperfect information, poor incentives, unintended consequences, or administrative costs
• Match the government intervention with its intended benefit and unintended consequences:

  Rent Control ↔️ Protect tenants, shortage of units

  Agricultural Subsidies ↔️ Stabilize incomes, overproduction

  Nationalized Industries ↔️ Improve access, lack of innovation
• What is one example of a government policy based on imperfect information?

  Subsidy leading to overproduction
• What is one primary cause of government failure related to market conditions and consumer preferences?

  Imperfect information
• Interventions with unintended consequences can worsen market dynamics.


  True
• Match the cause of government failure with its explanation:

  1️⃣ Imperfect information

  2️⃣ Governments lack full knowledge of market conditions and consumer preferences.

  3️⃣ Poor incentives

  4️⃣ Policy-makers are driven by political motivations or personal gain.

  5️⃣ Unintended consequences

  6️⃣ Interventions have unexpected and negative impacts on market dynamics.

  7️⃣ Administrative costs

  8️⃣ The costs of designing, implementing, and enforcing policies outweigh the benefits.
• Examples of government failure include rent control, agricultural subsidies, and nationalized industries.


  True
• What is the intended benefit of rent control?

  Protect tenants from high costs
• Match the government intervention with its result:

  Rent Control ↔️ Worsens housing market

  Agricultural Subsidies ↔️ Harms foreign farmers and distorts global markets

  Nationalized Industries ↔️ Reduced efficiency and higher costs
• Government failure can lead to over or underproduction of goods and services.


  True
• What is one way government failure can impact innovation and technological progress?

  Stifles innovation