1.4.2 Government failure

• Government failure occurs when government intervention in the market results in a less efficient allocation of resources
• Poor information is a primary cause of government failure.
• What is an example of government failure mentioned in the study material?

  Rent controls
• Factors contributing to government failure

  1️⃣ Poor information

  2️⃣ Unintended consequences

  3️⃣ Bureaucratic inefficiencies

  4️⃣ Political objectives
• Unintended consequences of government policies may include unforeseen and negative impacts
• Rent controls can lead to a shortage of affordable housing due to unintended consequences.
• What is an unintended consequence of minimum wage laws?

  Increased unemployment
• Agricultural subsidies can lead to distorted market prices
• Policies driven by political objectives often disregard economic efficiency
• What is an unintended consequence of rent controls?

  Increased black market
• Minimum wage laws can result in higher prices for consumers.
• Match the policy with its negative consequences:

  Rent Controls ↔️ Shortage of rentals, deteriorated housing quality

  Agricultural Subsidies ↔️ Overproduction, distorted prices, environmental damage
• What is a strategy to mitigate government failure?

  Improved information
• Policies should be adaptable to changing circumstances
• Strategies to mitigate government failure

  1️⃣ Improved Information

  2️⃣ Policy Flexibility

  3️⃣ Cost-Benefit Analysis

  4️⃣ Independent Evaluation

  5️⃣ Citizen Engagement