4.1.8.10 Government Failure

Question 1

Types/Reasons for Government Failure

Answer 1

• Inadequate Information
• Conflicting Objectives
• Administrative Costs
• Unintended Consequences
• Politicians Maximising Own Welfare

Question 2

Reasons for Inadequate Information Government Failure

Answer 2

• Governments rarely possess complete information
• Therefore they may make a decision without knowing all of the points to consider

Question 3

Reasons for Conflicting Objectives Government Failure

Answer 3

• Governments face an opportunity cost with all of their decisions
• They cannot please all of the people, all of the time
• They may be influenced by pressure groups, their own party’s beliefs

Question 4

Reasons for Administrative Costs Government Failure

Answer 4

-The administrative cost of resolving a market failure may be more than the welfare benefit gained from correcting the failure

Question 5

Reasons for Unintended Consequences Government Failure

Answer 5

• Even with lots of information, and careful analysis of a policy, the reality may create problems that could not be foreseen

Question 6

Reasons for Politicians Maximising Own Welfare Government Failure

Answer 6

• Governments should aim to maximise the population’s welfare but due to political aims might choose a different approach