GOVERNMENT FAILURE

Question 1

What is government failure

Answer 1

Occurs when government intervention leads to an et welfare loss compared to the free market solution

Question 2

What are the forms of government failure

Answer 2

• distortion of price signals
• Unintended consequences
• Excessive administrative costs
• Information gaps

Question 3

why is distortion of price signals market failure

Answer 3

Changing the price signals in a market may lead to a greater net welfare loss compared to if nothing was done

Question 4

what is unintended consequences

Answer 4

when a form of government intervention leads to unexpected consequences (net welfare loss)

Question 5

Excessive administrative costs

Answer 5

sometimes the administrative cost of correcting market failure is so large that it outweighs the welfare benefit from the correction of the market failure

Question 6

Information gaps

Answer 6

-Governments rarely possess complete information on which to base a decision
->hence the government ay make a wrong policy response