1 - Gov Failure Flashcards
(7 cards)
1
Q
What is gov failure?
A
When gov intervention worsens allocation of scarce resources
2
Q
What does gov failure result in?
A
- greater net welfare loss
- cost of intervention outweighs benefits
3
Q
Causes of gov failure
A
- political self interest
- bureaucracy and red tape
- conflicting objectives
4
Q
Outcomes of gov failure
A
- greater inequality
- high costs of compliance and implementation
- unintended consequences
- conflicts with other macro/micro objectives
5
Q
Examples of unintended consequences
A
- min wage causes reduction in non-wage benefits for workers
- charging for plastic bags encourages switch to canvas which could be worse
- targets for treating patients could lead to lower quality care
6
Q
Arguments against gov intervention
A
- price mechanism is very efficient and can promote innovation
- when resources are scarce higher prices can be good
- profit motive incentivises businesses and entrepreneurs to
7
Q
Arguments for gov intervention
A
Many features economy needs to function effectively
- public goods
- legal system
- measures to reduce inequality
