Government Failure

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  • Market Failure
    • Information Gaps
      • Symmetric Information  - Where the buyer and the seller know the same information.
      • Asymmetric Information - Where one party has more information than the other.
        • Without perfect knowledge this means there is potential for a misallocation of resources
    • Externalities
      • Negative Externalities - This is where the marginal private cost exceeds the social cost, resulting in a net loss of welfare.
        • How to draw - Benefits below Costs   - Private EQ to social Line to work out the loss.
    • Public goods
      • Public goods are non rivalry (one persons consumption does not affect anothers)
      • Non excludable (once provided it cannot be prevented from being used)
    • Unintended consequence -where the action that was meant to correct the situation had an external effect
    • Conflicting objectives - where the government wants to archive one objective but it affects another.


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