Government Intervention and Market structure

A market failure can be best defined as a situation where:

• Markets enable buyers to gain utility

• Markets fail to enable sellers to make profits

• Markets fail to allocate resources efficiently

• Markets encourage people to take risks

Which of the following is the most accurate explanation of why governments supply public goods in market economies

• Only taxes can be used to fund the provision of public goods

• Governments can ensure that imported raw materials necessary to produce public goods have zero-rated customer duties

• Governments are not subject to information failure

• Markets are unlikely to form to supply public goods

What are the characteristics of public goods?

• Excludable and rival

• Excludable and non-rival

• Non-excludable and non-rival

• Non-excludable and rival

Merit goods are those which, when consumed, generate positive external benefits. This is likely to mean that, in a free market economy, the good will be

• Subject to VAT

• Under-supplied

• Over-consumed

• Over-supplied

Which of the following best describes something non-viral in consumption?

• Five friends splitting fuel bill to drive to school

• A delicious chocolate tart

• Watching a streaming video services with unlimited bandwidth

• A seat on an airplane going to tropical beach

What is free-rider problem?

• When producers receive subsidies for their goods

• When consumers benefit from a good without paying for it

• When producers charge less than the cost of production

• When consumers pay more than the market price

The free rider problem is most likely to exist in the following

• A train running between two major cities

• An open-air music concert in a public park

• The market for racehorses

• A hotel which is open 24 hours a day

One reason why the free market fails the achieve an optimal allocation of scarce resources is because:

• Public goods are provided free of charge to users

• Positive externalities lead to overproduction of a good

• There is underproduction of goods with positive externalities

• Individual's incomes and wealth are not identical

What is the purpose of a government subsidy?

• To encourage consumption

• To discourage consumption

• To raise revenue

• To stabilise the price

In which situation will it be necessary to use an alternative to the price mechanism to allocate a good between consumers?

• Supply exceeds the quantity demanded at the initial market price

• The government sets a price ceiling below the equilibrium price

• The product is excludable and rival

• There is a single monopoly producer