Read the following passage:
'Beverage distributors are required by regulatory quotas to source a growing proportion of their packaging material from recycled aluminium manufacturers. By next year, this must amount to at least 20 per cent of all packaging material purchased. Recycled aluminium manufacturers are paid a premium price for their material because there is a severe scarcity of supply of high-grade recycled metals.'
It can be deduced from the passage that
the government is directly subsidising the production of recycled aluminium.
the social cost of producing recycled packaging is greater than its private cost.
the government is subsidising the negative externalities arising from standard aluminium production.
beverage distributors are facing higher average packaging costs because a proportion of their supply must be sourced from higher-priced recycled material.
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.