1.4.2: Government Failure

• Governments can fail when they intervene in markets if they worsen the problem or create a new one, resulting in net welfare loss to society
• Government subsidies could distort price signals, reducing the power of the free market which could lead to inefficient allocation of resources
• Government policies might have unexpected or unintended consequences, causing failure
• Sometimes social benefits of a policy might not be worth the financial cost of implementing it. If it isn't then there may be a failure
• Some policies made by governments might be made decided without perfect information. However it is impractical to get perfect information so assumptions must be made which are sometimes wrong