term1 Definition1term2 Definition2term3 Definition3
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Government failure
When government intervention leads to an inefficient allocation of resources and a net welfare loss
Distortion of price signals
Distorts the price mechanism so that resources are missllocated
Unintended consequences
Intervention has negative impacts the government don’t expect
Excessive admin costs
Uses lots of money regulating and enforcing
Government information gaps
Intervention that has been made without sufficient information leading to a misallocation of resources
4 categories of government failure and examples
-distortion of price mechanism: minimum prices- common agricultural policy for EU
-Unintended consequences: subsidies of energy in developing countries
-Admin costs: fishing quotas
-Information gaps: fishing quota for EU set too high
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