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What are the 4 causes of government failure?
Distortion of price signals
Unintended consequences
Excessive admin costs
Information gaps
Explain how a distortion of price signals causes gov failure.
Subsidies can prevent the price mechanism from doing its job as it can't act freely.
When might distortion of price signals be a problem?
Subsidise and industry which is failing.
Explain how unintended consequences cause gov failure.
Consumers can react in unexpected ways to government policies. A policy could be expensive to implement and so it's hard to achieve original goals.
Explain how excessive admin costs cause gov failure.
Social benefits<financial implementation cost
Explain how information gaps cause gov failure.
Government can't have perfect information when deciding the policies. To have perfect information a cost-benefit analysis is needed (time-consuming + expensive). So assumptions are made.
Give an example of how an information gap can cause government failure.
Housing policies are LR and often fail.
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