Understanding Government Failure in Economics

The video tutorial explains the concept of government failure, where government intervention in markets leads to reduced societal welfare. It uses the 'cobra effect' story to illustrate unintended consequences and discusses causes like administration costs and conflicting objectives. The Universal Credit system in the UK serves as a case study. The tutorial emphasizes evaluating government interventions for potential failure, considering factors like unintended consequences and administration costs.

What is the primary goal of government intervention in markets?

• To improve societal welfare

• To increase government revenue

• To eliminate competition

• To control market prices

In the cobra bounty story, what unintended consequence occurred?

• The governor increased the bounty amount

• People started farming cobras for the bounty

• Citizens stopped hunting cobras

• The cobra population decreased significantly

What is the 'law of unintended consequences' in the context of government intervention?

• A rule that predicts economic outcomes

• A law that mandates government intervention

• A guideline for reducing administration costs

• A principle that actions can have unforeseen effects

Which of the following is NOT a reason for government failure?

• Administration costs

• Unintended consequences

• Perfect information

• Conflicting objectives

What was the intended benefit of the Universal Credit system?

• To provide free healthcare

• To eliminate unemployment

• To reduce fraud and administration costs

• To increase tax revenue

How can subsidies for merit goods potentially lead to government failure?

• By reducing societal welfare

• By eliminating private markets

• By having administration costs exceed benefits

• By increasing market output

What is a potential downside of government intervention in markets?

• Increased competition

• Lower administration costs

• Potential for government failure

• Higher societal welfare