Gov failure

Question 1

Information gaps

Answer 1

• Some policies might be decided without perfect information. This might require a full cost- benefit analysis, and it could be time- consuming and expensive.
• However, it is impractical for government to gain every bit of information they need, so assumption are made.

Question 2

distortion of price signals

Answer 2

• Government subsidies could distort price signals by distorting the free market mechanism. A free market economist would argue that this could lead to government failure. there could be inefficient allocation of resources because the market mechanism is not able to act freely

Question 3

Unintended consequences

Answer 3

This is when the action of producers and consumers have unexpected or unintended consequences
- With government policies, consumers react in unexpected ways. A policy could be undermined which could make government policies expensive to implement, since it is harder to achieve their original goals