Reasons for Government Intervention in Markets
26 questions· page 1 of 3
Why might governments provide free education for children aged 4 to 16 years old?
Options
A Consumers are not fully aware of the benefits of education.
B Education in a free market system would be over consumed.
C Education is a public good and there would be many free riders.
D The private costs of education exceed the private benefits in a free market.
A government in a market economy decides to subsidise the provision of the internet in remote parts of a country.
What is the most likely reason for doing this?
Options
A to decrease provision of a demerit good
B to increase provision of a merit good
C to provide a public good
D to reduce negative externalities
A country with a market economy changes to a mixed economy.
When is this change likely to achieve the largest improvement in resource allocation?
Options
| number of demerit goods in the country | Gini coefficient value for the country | |
|---|---|---|
| A | many | 0.4 |
| B | many | 0.7 |
| C | few | 0.4 |
| D | few | 0.7 |
Which merit good is likely to be under-consumed the most?
Options
| level of imperfect information among consumers | subsidy received by producers | |
|---|---|---|
| A | high | yes |
| B | high | no |
| C | low | yes |
| D | low | no |
Why might a government introduce a minimum price for a product?
Options
A to benefit poorer consumers
B to encourage consumption of a merit good
C to encourage production of a public good
D to support the incomes of producers
A government intervenes in the market for good X. It fixes a minimum price above the market equilibrium.
Which situation explains why the government would do this?
Options
| good X | reason for intervention | |
|---|---|---|
| A | demerit good | to decrease consumption |
| B | demerit good | to increase consumption |
| C | merit good | to decrease consumption |
| D | merit good | to increase consumption |
What is the main reason an economy is unlikely to rely completely on market forces to allocate resources?
Options
A Demerit goods will be over supplied.
B Merit goods will be under supplied.
C Private goods will not be supplied.
D Public goods will not be supplied.
A government wishes to intervene in a free market to allocate healthcare at the socially optimal level.
Which combination correctly identifies the reason for government intervention in the healthcare market?
Options
| healthcare consumption in a free market | healthcare production in a free market | provision of information in a free market | |
|---|---|---|---|
| A | overconsumption | overproduction | too little |
| B | overconsumption | underproduction | too much |
| C | underconsumption | underproduction | too little |
| D | underconsumption | overproduction | too much |
In the diagram, S1 and S2 are the supply curves for an agricultural product in years 1 and 2 respectively. D is the demand curve in years 1 and 2.
In year 1, the government purchased an amount necessary to ensure that the price was OP.
The price is held at OP in year 2.
How much more must the government buy in year 2 than it bought in year 1?
Options
A WZ
B XY
C XZ
D YZ
A government wishes to encourage the consumption of a merit good and reduce the consumption of a demerit good.
Which policy should it adopt towards each good?
Options
| merit good | demerit good | |
|---|---|---|
| A | impose a minimum price | produce only in the public sector |
| B | increase advertising on the benefits of the good | put legal controls on output |
| C | confine access to certain age groups | tax output |
| D | subsidise the good | set a minimum level of output |