Government intervention to control market failure

Question 1

What is market failure?

Answer 1

Market failure occurs when the price mechanism fails to lead to an efficient allocation of resources

Question 2

Name one common cause of market failure.

Answer 2

Externalities, public goods, or market power are common causes of market failure.

Question 3

True or False: Government intervention is always the best solution to market failure.

Answer 3

False

Question 4

What role does the government play in correcting negative externalities?

Answer 4

The government can impose taxes or regulations to reduce negative externalities.

Question 5

Fill in the blank: Public goods are characterized by ______ and ______.

Answer 5

non-excludability; non-rivalry

Question 6

What is the purpose of subsidies in the context of market failure?

Answer 6

Subsidies are used to encourage the production or consumption of goods that have positive externalities.

Question 7

Multiple Choice: Which of the following is NOT a method of government intervention? A) Taxation B) Regulation C) Free market policies

Answer 7

C) Free market policies

Question 8

What is a price ceiling?

Answer 8

A price ceiling is a maximum price set by the government that can be charged for a good or service.

Question 9

True or False: Government regulations can lead to market distortions.

Answer 9

True

Question 10

What is the effect of a price floor on a market?

Answer 10

A price floor can lead to a surplus of goods if set above the equilibrium price.

Question 11

What are merit goods?

Answer 11

Merit goods are goods that have a positive effect on society and ought to be consumed more

Question 12

Short Answer: How can government intervention address information asymmetry?

Answer 12

The government can provide information, enforce regulations, or mandate disclosures to ensure consumers have adequate information.

Question 13

Fill in the blank: The main aim of government intervention in the case of public goods is to correct ______.

Answer 13

under-provision

Question 14

What is the concept of ‘social welfare’ in economics?

Answer 14

Social welfare refers to the overall well-being of society, often considered in terms of economic efficiency and equity.

Question 15

Multiple Choice: Which of the following is a characteristic of a public good? A) Rivalrous B) Excludable C) Non-excludable

Answer 15

C) Non-excludable

Question 16

What is public expenditure?

Answer 16

Public expenditure are the spendings carried out by local and national governments and public sector enterprises.

Question 17

What is private expenditure?

Answer 17

Private expenditure are the spendings carried out by individuals and firms that are not government-owned