1.4.2 Government Failure Flashcards
What is Government failure?
Government failure occurs when the government intervenes in a market to correct market failure, but the intervention results in a more inefficient allocation of resources.
What are the effects of Government failure?
Causes greater welfare loss, Poor value for money, May have long term consequences
What are the causes of Government failure?
Distortion of price signals, Excessive administration costs, Information gaps, Unintended consequences
What is distortion of price signals?
When the signalling function of the price mechanism is artificially altered e.g. minimum prices.
What is an information gap?
An information gap exists when either the buyer or seller does not have access to the information needed for them to make a fully-informed decision.