Types Of Govt Failure Flashcards
(12 cards)
What are the 4 ways a market can fail
Negative / positive externalities
Public goods
Information gaps
Lower prices set my governments reduce producers incentive to supply , creating
Excess demand / shortage
What did the maximum prices do to the price mechanism
Distorted the price mechanism causing a disequilibrium
How can maximum prices distort the price mechanism
Reducing price below equilibrium creating excess demand
Define government failure
When the government intervenes to correct a market failure but the allocation of resources is worse than before
What is the law of unintended consequences
When government intervention always has unintended consequences
What can information gaps cause the government to do
Miscalculate external costs
Can become a problem when budgeting for new projects
Example of info gaps leading to govt failure
Carbon tax being raised too high leaving consumers unable to afford heating
Or underestimating government project costs and wasting billions
What is the law of unintended consequences
Gift intervention can have negative unintended consequences
What do admin costs cause
They can exceed the benefits of govt intervention
And knead to government failure
4 causes of government failure
The distortion of the price mechanism
The law of unintended consequences
Administration costs
Information gaps
