Which situation is an example of government failure in public finance?
Correct answer: A. A policy creates costs greater than its social benefits
- A. A policy creates costs greater than its social benefits
- B. A market supplies a good at its equilibrium price
- C. A household saves part of its disposable income
- D. A firm reduces costs through improved technology
Explanation
Government failure occurs when public intervention produces an inefficient or harmful outcome, such as excessive costs, poor incentives, or regulatory capture. The other situations describe ordinary market or household behaviour, not failure of government policy.
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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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