U1 AOS 2 - Lesson 19 - Role of Government in the Economy

Question 1

What is market failure?

Answer 1

Market failure occurs when the allocation of goods and services by a free market is not efficient.

Question 2

True or False: Government intervention is always necessary to correct market failure.

Answer 2

False

Question 3

What role does government play in addressing public goods as a form of market failure?

Answer 3

The government provides public goods since they are non-excludable and non-rivalrous, which the market fails to supply efficiently.

Question 4

Which of the following is NOT a method of government intervention to correct market failure? A) Taxes B) Subsidies C) Deregulation D) Regulation

Answer 4

C) Deregulation

Question 5

What is a subsidy?

Answer 5

A subsidy is a financial assistance provided by the government to support a particular industry or economic sector.

Question 6

True or False: Subsidies can help correct market failures by encouraging the production of goods with positive externalities.

Answer 6

True

Question 7

Which of the following is an example of a subsidy? A) Tax increase B) Direct payment to farmers C) Regulation of prices

Answer 7

B) Direct payment to farmers

Question 8

True or False: Regulation is a method used to correct market failure by imposing rules or laws on businesses.

Answer 8

True

Question 9

Fill in the blank: Direct provision refers to the government supplying ________ to correct market failure.

Answer 9

goods or services

Question 10

Which of the following is a potential effect of imposing an indirect tax on a product? A) Increase in consumer prices B) Decrease in government revenue C) Increase in market supply

Answer 10

A) Increase in consumer prices

Question 11

What is the primary goal of using regulation as a tool to correct market failure?

Answer 11

To ensure fair competition and protect consumers and the environment.

Question 12

What is government failure?

Answer 12

Government failure occurs when government intervention in the economy causes an inefficient allocation of resources, leading to a worse outcome than if the market had operated freely.

Question 13

Name one consequence of government failure.

Answer 13

One consequence of government failure can be increased poverty and inequality due to misallocation of resources.

Question 14

Fill in the blank: A minimum wage set above the equilibrium wage can lead to ______.

Answer 14

unemployment

Question 15

What is one potential consequence of raising the minimum wage?

Answer 15

Increased unemployment among low-skilled workers.