Syllabus T. Y. B. A. Paper : IV advanced economic theory with effect from academic year 2010-11 in idol

Government Failures- 
it‟s the limitation of government in 
achieving its goals. 
1. Limited information- the consequences of many actions are 
complicated and difficult to foresee. Govt. does not have the 
information requires to do what it would like to do. 
2. Limited control over private market responses- Govt. has 
only limited control over the consequences of its action. 
3. Limited control over bureaucracy- system failure from 
legislation to implementation of govt. project. 
4. Limitation imposed by political processes- political process 
through which decisions about actions are made would raise 
additional difficulties. 
H. Achieving Balance between Public and Private Sector 
Market often fails, but government often does not succeed in 
correcting the failures of the market. With the recognition of the 
limitation of government implies that govt. should direct its energies 
only at those areas in which market failures are most significant 

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and where there is evidence that government intervention can 
make a significant difference. 
I. Fiscal Function: Allocation, Distribution and Stabilization 
Allocation 
Government increase efficiency by promoting competition, 
curving externalities like pollution and providing basic public goods. 
*Efficiency- denotes the most effective use of society resources in 
satisfying people‘s wants and needs 
 
Distribution 
Government promotes equity by using tax and expenditure 
programs to redistribute income towards particular groups. 
 
Stabilization 
Government fosters macroeconomics stability and growth. 
Reducing unemployment and inflation while encourages growth. 
14.2 MARKET FAILURE AND RATIONALE FOR