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.
What are information gaps?
Government interventions can be implemented based on poor information about a market, leading to unintended consequences. e.g. difficult to quantify PED, size of externalities, socially optimal quantity, number of pollution permits.
What are excessive administrative costs
Government interventions can fail if administrative costs related to research, implementation, monitoring, and enforcement are too high. e.g. monitoring costs, enforcement costs.
Summary questions
- What are unintended consequences?
- What are market distortions?
- What are information gaps?
- What are excessive administrative costs?
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