3.2.3.4 Government failure

• Poor information can lead to government failure if price controls are set too low, causing shortages.

  True
• Tax breaks for renewable energy may clash with subsidies for fossil fuels, causing policy conflicts.


  True
• High administrative costs in setting up a new benefits system can outweigh its benefits
• Match the type of government intervention with its potential impact:

  Price Controls ↔️ Shortages or surpluses

  Subsidies ↔️ Distorted markets and unfair advantages

  Nationalisation ↔️ Decreased innovation and efficiency

  Privatisation ↔️ Higher prices and reduced service quality
• Subsidies can distort markets by encouraging inefficient production
• What are potential negative outcomes of privatisation in monopolistic industries?

  Higher prices and reduced quality
• What is government failure?

  Inefficient allocation of resources
• Poor information can lead to price controls that are too low
• Match the example with the reason for government failure:

  Tax breaks for renewable energy ↔️ Policy Conflicts

  High costs of setting up a system ↔️ Administrative Costs
• Farm subsidies in the EU can create agricultural surpluses
• Match the term with its explanation:

  Privatisation ↔️ Government sells state-owned companies

  Price Controls ↔️ Governments set maximum or minimum prices

  Subsidies ↔️ Direct financial assistance to industries
• Rent control can lead to a decline in housing availability
• Steps to avoid government failure

  1️⃣ Improve information and decision-making

  2️⃣ Reduce administrative costs

  3️⃣ Anticipate unintended consequences

  4️⃣ Coordinate policies
• Streamlining bureaucratic processes helps reduce administrative costs
• Match the solution with the problem it addresses:

  Coordination of policies ↔️ Policy Conflicts

  Anticipating consequences ↔️ Unintended Consequences

  Reducing administrative costs ↔️ High Administrative Costs
• Government failure occurs when government intervention in the economy leads to an inefficient allocation of resources
• High administrative costs can outweigh the benefits
• Rent control can lead to a decline in housing availability
• What may happen if governments lack accurate information when setting price controls?

  Shortages
• Policy conflicts arise when different government policies clash, leading to inefficiencies.


  True
• What is the impact of price controls on market efficiency?

  Reduces efficiency
• Nationalisation may lead to decreased innovation due to a lack of competition.


  True
• Steps leading to government failure:

  1️⃣ Government intervenes in the economy

  2️⃣ Intervention results in inefficient resource allocation

  3️⃣ Outcomes are worse than without intervention
• Unintended consequences can arise from government policies.

  True
• What happened when rent control was introduced in New York?

  Decline in housing availability
• Nationalised British Leyland suffered from inefficiencies due to lack of competition.


  True
• What is one key reason for government failure?

  Poor information
• Tax breaks for renewable energy clashing with subsidies for fossil fuels is an example of policy conflicts.


  True
• What can governments do to address poor information?

  Invest in better data
• Modeling policies before implementation can help identify unintended consequences.


  True