Take this Exam: A-Level Economics: Government Intervention and Failure | Zestly

Question 1

When a government sets a minimum price (price floor) higher than the market equilibrium price, what is the immediate effect on the market?

Accepted Answer

Excess supply occurs as quantity supplied exceeds demand.

Question 2

Which of the following statements correctly compare ad valorem taxes and specific taxes?

Accepted Answer

An ad valorem tax is a percentage of the price, while a specific tax is a fixed amount per unit.

Question 3

What is the primary reason that state provision of public goods can lead to government failure?

Accepted Answer

Lack of a profit motive leads to productive inefficiency.

Question 4

Which of the following are examples of government intervention that could lead to unintended consequences?

Answer

Providing free education to increase human capital.

Answer

Imposing a maximum price on rent, leading to a decline in housing quality.

Answer

Subsidizing a firm that then uses the funds to lobby for more subsidies.

Answer

Setting a pollution tax that successfully reduces emissions to the target level.

Question 5

If the government introduces a regulation requiring all firms to install specific safety equipment, what is the likely impact on the market equilibrium?

Answer

The demand curve shifts to the right.

Answer

The equilibrium price falls and quantity increases.

Answer

The supply curve shifts to the left due to increased production costs.

Answer

The market becomes perfectly competitive.