Government Failure | A-Level Economics Notes

These revision notes cover everything you need to know about Government Failure for A-Level Economics. They're designed for students studying AQA A-Level Economics, Edexcel A-Level Economics, and Edexcel International A-Level Economics. Written by Jaisul Naik, UCL Economics graduate and A-Level Economics tutor since 2017.

What is government failure?

Government failure occurs when government intervention leads to an outcome that reduces economic welfare even further.

What are unintended consequences?

Government intervention aiming to reduce a market failure can cause new problems, which can require further intervention, or increase government costs. e.g. black markets, firms becoming over-dependent on subsidies.

What are market distortions?

A free-market economist would always argue against government intervention as it distorts signals in the market, meaning that the price mechanism cannot work effectively. e.g. excess demand, excess supply, changes in incentives, deadweight loss.