1.4.2 Government Failure Flashcards

1
Q

What is Government failure?

A

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.

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2
Q

What are the effects of Government failure?

A

Causes greater welfare loss, Poor value for money, May have long term consequences

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3
Q

What are the causes of Government failure?

A

Distortion of price signals, Excessive administration costs, Information gaps, Unintended consequences

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4
Q

What is distortion of price signals?

A

When the signalling function of the price mechanism is artificially altered e.g. minimum prices.

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5
Q

What is an information gap?

A

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.

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