Government failure

• What can happen when governments intervene in markets?

  Governments can worsen existing market failures or create new failures.
• What is the result of government failure in markets?

  It results in a net welfare loss to society.
• What could cause a loss in welfare due to government intervention?

  The loss could be from ineffective intervention or harm caused by the intervention.
• What are the causes of government failure?

  • Distortion of price signals
  • Unintended consequences
  • Excessive administrative costs
  • Information gaps
• How can government subsidies lead to government failure?

  They can distort price signals and disrupt the free market mechanism.
• What might happen if the government subsidizes a failing industry?

  It could lead to an inefficient allocation of resources.
• What are unintended consequences in the context of government policies?

  They are unexpected reactions from producers and consumers to government actions.
• How can unintended consequences affect government policy implementation?

  They can undermine the policy, making it expensive to implement and harder to achieve original goals.
• What are excessive administrative costs in relation to government policies?

  They refer to situations where the social benefits of a policy do not justify the financial costs of administering it.

  
• Why might a government policy cost more than anticipated?

  Because the social benefits might not be worth the financial cost of administering the policy.
• What is an information gap in the context of government policy-making?


  It occurs when policies are decided without perfect information, often requiring a full cost-benefit analysis.
• Why are government housing policies considered to have failed several times in the past?

  Because they are long-term policies that often lack sufficient information for effective decision-making.
• What is a limitation of governments in obtaining information for policy-making?

  It is impractical for governments to gain every bit of information they need, leading to assumptions being made.