Question

explain any five causes of government (non-market) failure

Answer 1

Government failure means when the government tries to stimulate or revive the economy by corrective measure it backfires creates more financial problems.

1. Government short-sightedness : Government might try to find a quick solution by focussing on the short term solutions. . Subsidies to certain sector increases market efficiency and may help the sectors in the short run but may cause more harm in the long run.

2. Inefficient Bureaucracy: Inefficient bureaucracy increases the time frame of implementation of government schemes and also faulty implementation causes economic problems. Late e implementation escalates the costs which are paid form the tax payer’s money. Delay in implementing environment laws can have huge impact in the long term.

3. Political lobbying: Certain companies have favourable terms with politicians who may try to get favourable policies specific to their sector but might create severe financial complications. E.g. Industries which are into military equipment might lobby for war to get higher profits but may put the economy into turmoil.

4. Clash of goals: The objectives of government might conflict with each other. E.g. Increase focus on thermal energy, coal and mining might have a direct conflict with the other objective of environment conservation and sustainable development.

5. Government policies creating artificial shortage and surpluses.
By fixing the minimum wage there will be more supply of labour than jobs which ill lead to unemployment and if price of medicine are reduced artificially there will be huge demand and shortage of medicines.

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