| What is Government Failure? | -When the Government Intervenes, and Resources are Misallocated and a Net Welfare Loss is Present,
-This is an Unintended Consequence |
| The Local Authorities charges the Disposal of Non-Household Waste. Why may this lead too Government Failure? | -The Main Aim here is to make Waste Producers Soak up the Cost of the Externalities.
-But this has led to Fly Tipping Increasing which creates Negative Externality [Visual Pollution] and Resources needed to Clear it up
-Therefore, the Intervention from the Authorities has resulted in an Unintended Production Negative Externality |
| How can Market Distortions [Disequilibrium] Happen from Government Intervention? Use an Example with Income Tax, Fixing the Price, and Subsidies | -Income Tax may be a Disincentive to Work Hard - Increasing your Earning means more Tax has to be Paid
-Fixing the Price can also lead to Price Signals being Mucked up. Minimum Prices giving Suppliers the Ability to Mass Produce and Flood the Market
-Subsides may make Firms less Efficient as they become more Reliant |
| Why can Excessive Regulations [Bureaucracy] create Market Distortions? Make an Example with the Housing Market | -Planning Controls means it takes a Long Time in Construction Projects. Sure they are Safe, but the Amount of Time may just not be Worth it. This will Reduce the Supply in the Housing Market, and Increase Price.
-Time Lags as well, as the Government can not Respond to the Society’s Demands quickly enough due to Regulation. This may make Houses worse off |
| So why may the Government not be able to Avoid Government Failure? | -Usually trying to Complete One Government Objective can Negatively Impact another. Taxing more the Pollutions Firms can lead to Unemployment
-Short Term Solutions, due to Pressure, may Solve Issues Quickly, but the Long Term is under more Stress.
-Governments, due to Imperfect Information, may make the Wrong Call and so therefore make Market Failure there. [Don’t know how Consumers Act eg]
-Large Amount of Resources can be used to try and Correct Market Failure, as well as Policing. Opportunity Cost? |
| What else can Cause Government Failure? | -Regulatory Capure: Firms that are Covered by Regulatory Bodies may Influence the Call of the Regulatory to have the Outcomes suit the Firm.
-Time is Needed to see where Market Failure is, and try and dish out a Policy to Correct. The Problem however may have Changed
-External Shocks can affect how Effective Government Intervention goes. |
