government failure

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  • Created by: annie.m13
  • Created on: 27-04-18 15:09
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  • government failure
    • causes
      • political self interest
        • leads to a missallocation of resources
          • pressure groups and major corporations can influence the decision
      • policy myopia
        • myopia = the quality of being short-sighted.
        • when decisions are made without taking into consideration the longterm effects
        • e.g. subsidies
          • if the market is unable to support itself then subsidies may keep businesses open longer than they should be
      • regulatory capture
        • when industries under the control of a regulatory body appear to operate in favour of the producers ratther than consumers
        • may prevent a market from operating freely
        • e.g. agriculture, household utilities, transport regulation
      • disincentive effects
        • mainly seen as a problem by free market economists
        • says that policies like minimum wage can cause real wage unemployment as it artficially raises wages
      • government intervention and evasion
        • if the government rises tax on demerit goods and it increases tax evoidence/black makrkets
      • policy decisions based on imperfect information
        • the gov can never know what everyone wants
        • a full cost-benefit analysis may not have been completed
      • the law of unintended consequences
        • all decisions have effects that are unanticipated or unintended
        • not really the govs fault as they cant predict how everyone will react
      • costs of administration and enforcement
        • the estimated social benefits of a policy may be outweighed by the administrative costs
    • free market economists rae distrustful of anytype of intervention
      • belive the price mechanisms should be trusted

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