Question

Which of the following best illustrates the idea of government failure and why? For each of the others, indicate why it does not illustrate the idea of government failure, or if you’d need more information to determine if it does and what information you would want to have. Think about this in terms of government action that works against the attainment of efficient policy.

        a.     A new environmental law raises the cost of coal powered energy production.

        b.    Agricultural farm support payments increase acreage planted thus increase fertilizer use and runoff and decrease water quality.

        c.     A local government builds a new park at a cost of $1.7 million.

7.     (4 points) Are the impacts of a program to control automobile pollution progressively or regressively distributed by income levels? Explain in a way that makes it clear what a progressive or regressive distribution of impacts is. Compare to a program to ensure the quality of public water supply systems for household water supply.

Answer 1

Q. Which of the following best illustrates the idea of government failure and why?

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In simple words, a government failure occurs when government intervention in a market ends up making the problem worse. The market becomes inefficient, and welfare is reduced.

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a. A new environmental law raises the cost of coal powered energy production.

This is not a government failure. The government has solved a negative externality problem by raising the cost of coal powered energy. This will reduce pollution and make society better off.

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b. Agricultural farm support payments increase acreage planted thus increase fertilizer use and runoff and decrease water quality.

This is a government failure. The government intervened in the agriculture market by introducing farm support payments. This led to an increase in planted quantity, but at the same time increased the use of fertilizers and damaged the water quality. Now, the government should solve this failure by restoring water quality somehow.

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c. A local government builds a new park at a cost of $1.7 million.

This is not a government failure. The government has done its job of providing public amenities, by incurring expenditures. The new park will create a positive externality to all members of society.

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Q. Are the impacts of a program to control automobile pollution progressively or regressively distributed by income levels? Explain in a way that makes it clear what a progressive or regressive distribution of impacts is. Compare to a program to ensure the quality of public water supply systems for household water supply.

A progressive distribution of impacts is where those who pollute the least, should be benefited the most. Those who pollute the most, should be benefited the least.

Or in other words, those who pollute the most, should be taxed the most. Those who pollute the least, should be taxed the least.

For example, in the public water supply system, those who use the most water, also have to pay the highest charges. Those who use the least water, should pay the least charges. Such a system is progressive.

In automobile pollution, the high income individuals and countries are the highest polluters. When pollution control laws are enforced, the lower income individuals and countries are affected more. This is because it limits their economic activities. Thus, their chances of become wealthy become lower.

Therefore, laws to limit pollution are generally considered as regressively distributed. Low income earners will be affected more than high income earners.