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).
378 exam-style questions on AQA A Level Economics 1.8 The market mechanism, market failure and government intervention in markets, covering 1.8.1 How markets and prices allocate resources, 1.8.2 The meaning of market failure, 1.8.3 Public goods, private goods and quasi-public goods, 1.8.4 Positive and negative externalities in consumption and production, 1.8.5 Merit and demerit goods, 1.8.6 Market imperfections, 1.8.7 Competition policy (A-level only), 1.8.8 Public ownership, privatisation, regulation and deregulation of markets (A-level only), 1.8.9 Government intervention in markets, and 1.8.10 Government failure. Each one has a worked solution and a mark scheme showing where the marks go.