Question:
Which of the following is most likely to be a reason for what economists call the phenomenon of ‘government failure’?
(1) The negative externalities that result from the production of some goods and services
(2) Excessive consumption of demerit goods
(3) Unequal distribution of income and wealth
(4) Imperfect competition in the markets
(5) Pursuit of self-interest amongst politicians
Correct Answer:
(5)
Answer Explanation:
While options 1 through 4 represent market failures (where the free market fails to allocate resources efficiently), government failure occurs when state intervention creates new inefficiencies. According to Public Choice Theory, the pursuit of self-interest by politicians and bureaucrats is a primary driver of government failure.
Topic: Public Finance Year: 2018
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