To correct the positive externalities associated with renewable energy production, a government introduces a subsidy for wind power generation. Under which of the following circumstances has this intervention resulted in government failure?
The subsidy is funded through a progressive taxation scheme, resulting in a redistribution of income from high-income to low-income households.
The policy fails to fully transition the country’s energy mix to 100%100\%100% carbon-free sources.
The combined administrative, monitoring, and lobbying costs of the subsidy program exceed the net social benefits generated by the reduction in carbon emissions.
The intervention reduces the market price of electricity, leading to an expansion of consumer surplus.
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.