government failure Flashcards
(18 cards)
what is gov failure
when state intervention causes an even more inefficient use of resources than previously achieved in a free market
why does gov failure occur
ICAUSE
- Inadequate info
- Cost (financial/
opportunity cost)
- Administrative error
- Unintended consequences
- Self Interest
- Expertise (..lack off)
how is cost a gov. failure
if gov buys something then (eg NHS) then it can’t state provide something else
what is meant by administrative errors
not everything can be regulated
what is meant by self interest
if gov implements a policy what is the guarantee this is the best for you
what is meant by reduced incentives
lost profit motive can lead to lower productivity and inefficiency (eg. overstaffing which would result in unemployment)
what is meant by short termism
when gov nears an election things may be promised to win over votes; may over provide public services
what is meant by regulatory capture
monopolies can gain more power
opportunity cost
the cost of choosing one option over another
what is ment by inadequate/imperfect info
policy makers do not have perfect information or they often do not understand the market they are trying to regulate
what are unintended consequences from gov. failure examples
-reduced economic welfare
-inefficiency to moral hazard
-creation of illegal markets
-resource misallocation
what is meant by unintended consequences from gov. failure
outcomes that are not foreseen and intended by a purposeful action when a policy is introduced
how can price ceiling on renting cause gov failure
causes an unintended consequence of lack of supply and excess demand as people are lose incentive to supply at a lower rate
how can price floor on demerit goods (alchol) cause gov. failure
causes an unintended consequence as people limit themselves of necessities to afford the higher prices and cause excess supply
how can short termism be caused as a gov failure
nearing gov elections may over provide public goods to win votes
how can monopolies gain more power from gov failures
overtime interactions between gov and monopiles can overly influence regulators may begin to favour the vested interests of the producers
vested interest meaning
an interest in influencing something so that you can continue to benefit from it
what can happen when their is reduced incentives
lost profit motive leads to lower productivity and inefficiency
