7a. Government failure
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Law of unintended consequences
Government intervention can have negative unintended consequences.
E.g. a tax on cigarettes can create a black market where cigarettes are sold without tax.
E.g. a tax on cigarettes can create a black market where cigarettes are sold without tax.
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Administration costs
The miscellaneous costs of government intervention.
E.g. paperwork, legal fees, secretaries, managers.
E.g. paperwork, legal fees, secretaries, managers.
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Information gaps
When the government lacks the information needed to intervene most efficiently.
E.g. the government doesn’t know what size to set for its carbon tax.
E.g. the government doesn’t know what size to set for its carbon tax.
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Distortion of the price mechanism
Government intervention can distort the price mechanism.
E.g. a minimum price will create excess supply between Qd and Qs:
*at front*
E.g. a maximum price will create excess demand between Qs and Qd:
E.g. a minimum price will create excess supply between Qd and Qs:
*at front*
E.g. a maximum price will create excess demand between Qs and Qd:
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