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

Question 1

Consider a market for a demerit good where the government imposes a specific tax of $t$ per unit. Which of the following accurately describes the impact on the market equilibrium?

Accepted Answer

The supply curve shifts vertically upwards by $t$.

Question 2

Which of the following are primary consequences of implementing a maximum price (price ceiling) set below the current free-market equilibrium price?

Accepted Answer

The emergence of excess demand (shortage).

Question 3

If the government provides a subsidy of $s$ per unit for a merit good, how does this affect the market equilibrium?

Accepted Answer

The supply curve shifts vertically downwards by $s$.

Question 4

Which of the following are recognized causes of government failure when attempting to correct market failures?

Answer

Regulatory capture.

Answer

Unintended consequences.

Answer

Perfect information availability.

Answer

High administrative costs.

Question 5

In a market for pollution permits, what is the primary mechanism that incentivizes firms to reduce their emissions?

Answer

The government sets a fixed price for all pollution emitted.

Answer

Firms are required to pay a tax proportional to their total output.

Answer

The opportunity cost of using permits that could otherwise be sold for profit.

Answer

The threat of immediate closure for any firm exceeding emission limits.