The Reasons Of A Government Successure And Government Failure
1081 Words5 Pages
When an economy is not performing efficiently as it should there is said to be “market failure”. The recommendation by economists is for government actions to correct such failure, such as taxes to help reduce pollution but in return increasing taxes on goods and services will raise the prices and cause inefficient operation of the market. In addition, taxes on incomes can create a disincentive effect and discourage individuals from working hard, thus reducing productivity which leads to slower growth and development within that country. Hence the diagnosis of market failure may be accurate, but the call for government involvement may be one that is naive and inappropriate.
The reason is that actual governments do not necessarily do what economists and others want them to do because there is “government failure” as well as market failure. Before recommending government actions to correct market failures, one should consider whether actual government policies would worsen rather than improve outcomes. Since many factors often make for considerable government failure, considering such failure is crucial and not just a theoretical fine point. A market failure and government failure are both about inefficiencies within a market. In economics, the concept of inefficiency can be applied to many different situations. In this case Inefficiency occurs when an economy is not operating on the tip of its PPF and is, therefore, not fully exploiting its scarce resources. This means that