Which of the following is NOT one of the seven sources of government failure discussed in lecture?

• A. Externalities
• B. Information asymmetry
• C. Regulatory capture
• D. Rent-seeking behavior

Answer: (A)

Verified step by step guidance

1. Step 1: Understand the concept of government failure. Government failure occurs when government intervention in the economy causes a more inefficient allocation of resources than would occur without that intervention.
2. Step 2: Recall the seven common sources of government failure discussed in microeconomics, which typically include issues like information asymmetry, regulatory capture, rent-seeking behavior, bureaucratic inefficiency, unintended consequences, lack of incentives, and political constraints.
3. Step 3: Recognize that externalities are actually a type of market failure, not a government failure. Externalities occur when a third party is affected by a transaction they are not involved in, leading to inefficient market outcomes without government intervention.
4. Step 4: Compare the options given: Information asymmetry, regulatory capture, and rent-seeking behavior are all recognized sources of government failure because they involve problems within government intervention or regulation.
5. Step 5: Conclude that since externalities are a market failure and not a government failure, it is the correct answer to the question asking which is NOT a source of government failure.