Which one of the following policy actions is most likely to correct market failure and improve the allocation of resources?
An indirect tax levied on goods with negative production externalities equal to the marginal external cost.
Setting a maximum price above the free market equilibrium level to make merit goods more affordable.
Deregulating industries that provide pure public goods to encourage private sector supply.
Subsidising all consumer goods to ensure equitable consumption across society.
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.