Microeconomics - Government Failure (potential evaluation points)

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  • Information Failure  (imperfect info)
    • Micro - Government Failure (Potential Evaluation Point)
      • Admin and Enforcement Costs can be very high
        • Regulations
        • Subsidies
          • Firms may become overly dependant on subsidies, which could lead to them to be more wasteful in their production
        • State Provision (education, housing, health)
          • Excess Demand - the NHS for example
        • Price Control
          • Enforcing as well as tending to the problems price control can cause
      • Unintended Consequence
        • Black Market
          • Due to high taxes for example. (e.g. cigarettes and alcohol)
        • The negative impacts on the poor
          • Very high taxes, less disposable income
        • Negative impacts on firms
          • Overly regulated / strict. Additionally tax could decrease the size of the firm or shut it down. Could also cause unemployment
        • Employment
          • lower rates of employment?
      • Regulatory Capture
        • This is when the interest of those in society are overlooked for the interest of CEO's and big firms
          • Occurs when firms influence the regulators to reduce the extent of the regulations  (maybe if they know them) therefore working in the interest of the firm. Not society.
      • When the costs of Govt. Intervention outweighs the benefits
        • The end result could worsen the allocation of scarce resources, further harming the social welfare.
    • If the government is not valuing goods and services properly, due to lacking information, this may lead to wild polices that are too strict / high / relaxed / low
    • Not always making sure the quantity of externalities are at their optimum level


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