Gov failure

Question 1

Gov failure

Answer 1

Gov intervention → greater net welfare loss compared to FM solution

Question 2

Public choice theory

Answer 2

Theories abt now & why public spending & taxation decisions are made

Question 3

Rent seeking

Answer 3

political Power by an econ agent to manipulate the distribution of resources for their own benefits at at expense of others w/o creating extra wealth for society

Question 4

Gov failure causes (7)

Answer 4

Net welfare loss rather than gain so arise when Total SC >Total SB from intervention

Question 5

Distortion of price signals

Answer 5

• intervention can change price signas in market
- eg intervine domestic agri market to support farmers … tariff so allows farmers to make profit
》 BUT - domestic C pay higher price for gs So if losses to C > gains … Gov failure

Price signal changes in labour Market
- eg goal so increase income lvl by Setting higher Min wage
》 BUT - too high … employers sack low pard workers = increase unemployment
- eg increase unemployment benefits to help unemployed
》 discouraged workers bc ben belter than jobs … increase unemployment

Question 6

Excessive Administrative cost

Answer 6

Admin cost can outweigh ben from correcting MF

Question 7

Info gaps

Answer 7

Gov don’t have complete info to make decisions … info misleading so make wrong policy in response to prob

Question 8

Conflicting Objectives

Answer 8

• Eg want to lower taxes but increase spending on defense
  → Every decision has oppo cost … Welfare gain from alt forgone wouldve been higher … make wronge policy where policies conflict obj