Which one of the following combinations of market failure, government intervention, and economic mechanism is correct?
To correct the underprovision of a merit good, the government provides a subsidy to producers, shifting the market supply curve to the right and lowering the consumer price.
To correct the overconsumption of a demerit good, the government imposes a maximum price below the market equilibrium to discourage producers from supplying the good.
To correct the negative externalities arising from production, the government introduces tradeable pollution permits, shifting the marginal private cost (MPCMPCMPC) curve of firms to the right.
To overcome the free-rider problem of a public good, the government establishes a legally binding minimum price to ensure private sector profitability.
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.