7a. Government failure

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5 Terms

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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.
2
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Administration costs
The miscellaneous costs of government intervention.

E.g. paperwork, legal fees, secretaries, managers.
3
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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.
4
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Distortion of the price mechanism
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:
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:
5
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