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1.8 The market mechanism, market failure and government intervention in markets

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Question 12

Which one of the following government interventions is correctly matched with its intended market outcome to address market failure?

A minimum price set below the market equilibrium price (Pmin<PeP_{min} < P_ePmin​<Pe​) for alcohol reduces the quantity demanded of a demerit good by creating excess supply.

The provision of a subsidy to producers of public transport shifts the market supply curve to the left, raising the consumer price and reducing the quantity consumed (Q<QeQ < Q_eQ<Qe​).

The imposition of a binding maximum price (Pmax<PeP_{max} < P_ePmax​<Pe​) on domestic energy services aims to make an essential good more affordable, though it can lead to excess demand.

The allocation of tradable pollution permits is used to correct the market failure of underprovided public goods by establishing property rights to encourage a higher market output (Q>QoptQ > Q_{opt}Q>Qopt​).

1.8 The market mechanism, market failure and government intervention in markets Questions

  1. A Level
  2. /Economics
  3. /1.8 The market mechanism, market failure and government intervention in markets