Markets fail to produce an efficient allocation of resources, but government also fail because ?
Correct answer: D. the measurement of social damages and benefits is difficult and imprecise
- A. elected officials will act selflessly for the good of society and ignore their own self interest
- B. the managers of government agencies are trying to maximize the profit of their agency and they ignore the implications that this has on other departments
- C. the optimal level of public goods may be too expensive for the society to produce
- D. the measurement of social damages and benefits is difficult and imprecise
Explanation
Government failure can arise because social costs and benefits, including external damages, are difficult to measure precisely. This makes it difficult for public decisions to identify and achieve the truly efficient outcome.
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About Public Finance
Government revenue and expenditure are analysed through taxation, public borrowing, budgets, subsidies, transfers and public debt. The topic explains how fiscal policy affects resource allocation, income distribution, economic stability and growth, while distinguishing direct from indirect taxes, progressive from regressive taxation, and public goods from goods supplied by private markets.
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