A government introduces a nationwide subsidy scheme for residential heat pump installations to reduce carbon emissions and combat climate change. This intervention would most clearly result in government failure if:
the total government expenditure on the subsidy payments exceeds the initial fiscal budget allocated by the Treasury.
the administrative costs, compliance distortions, and unintended welfare losses of the scheme outweigh its total environmental and economic benefits.
some lower-income households choose not to adopt the technology due to high remaining installation costs.
domestic manufacturers of traditional gas boilers experience a sharp decline in profit margins and market share.
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.