Economics 9708 · AS & A Level
Government intervention in markets
100 practice questions on Government intervention in markets, with worked solutions and instant marking.
What is the most likely reason for a government to make transfer payments, such as social security benefits, to workers who are unemployed?
Feb/March 2017
Which situation would not usually be seen as a strong reason for an industry to be nationalised?
Feb/March 2017
Explain the difference between public goods and private goods. Think about why one kind of good can be supplied profitably, whereas the other cannot.
Feb/March 2017
What is the main difficulty linked to a government supplying the precise quantity of a public good directly?
Feb/March 2018
The Bureau of Alcohol, Tobacco, Firearms and Explosives is an agency of the United States Government that oversees markets. What does its name suggest is most likely to be its principal responsibility?
Feb/March 2018
A government sets a ceiling price for electricity. Which statement supporting this policy could be regarded as economically valid?
Feb/March 2018
A government school is constructed by private builders in a residential area. The builders do not consider the noise and disruption caused. Why does a free market fail to include these external costs of constructing the school?
Feb/March 2018
Which of the following statements about government intervention is correct?
Feb/March 2019
‘If externalities are present, market failure follows, so the good must be supplied by the government.’ Discuss this claim.
Feb/March 2020
Why does the government provide national defence?
Feb/March 2021
‘Smoking cigarettes creates negative externalities, and negative externalities lead to market failure, which can be resolved only through government intervention.’ To what extent do you agree with this view?
Feb/March 2021
The National Library Board of Singapore is a public-sector organisation that funds and oversees the state libraries. What is the most likely explanation for this?
Feb/March 2022
Why do some local governments offer subsidies for bicycles in order to encourage people to use them?
Feb/March 2023
Explain the functions of price in resource allocation and consider how important these functions are for the possible effectiveness of a market economy.
Feb/March 2023
The world’s biggest pharmaceutical firms created and supplied an effective vaccine to fight a dangerous virus. What may be linked to this vaccine programme?
Feb/March 2023
What causes the underconsumption of merit goods?
Feb/March 2024
What is the principal reason why an economy is unlikely to depend entirely on market forces to allocate resources?
Feb/March 2024
A government chooses to substitute a private company with a company it owns to carry out household waste collection. Why might this decision be justified?
Feb/March 2024
In order to promote price stability, the government in country F runs a buffer stock scheme, with a minimum price of P1 and a maximum price of P2. The present demand and supply in the market are shown. What should the government do to make the scheme effective?
Feb/March 2025
Which of the following is not a reason for levying a tax on producers according to the level of pollution created during the production process?
Feb/March 2025
Explain, using examples, how a demerit good differs from a merit good.
May/June 2006
‘Governments, unlike the private sector, can put in place some of the conditions needed for the efficient allocation of resources. It is, therefore, best if there is as much government involvement in the economy as possible.’ Discuss whether you agree with this opinion.
May/June 2006
Discuss whether this argument has any validity.
May/June 2008
How far does the data in Fig. 1 support the normal demand curve relationship between the price and the quantity demanded of cigarettes?
May/June 2010
‘A free market price functions as a rationing and allocating mechanism.’ Explain how it does this.
May/June 2010
Describe the features and probable pricing policy of the market structure in which a car manufacturer is likely to operate.
May/June 2010
Describe the features and probable pricing policy of the market structure in which a car manufacturer is likely to operate.
May/June 2010
Explain how one group, other than dairy farmers, would be harmed by lower milk prices and how another group would benefit from lower milk prices.
May/June 2011
Explain the part that a government should play in a mixed economy.
May/June 2011
A government sets a maximum price for electricity. Which justification for this action might be regarded as valid on economic grounds?
May/June 2011
A government sets a ceiling price for electricity. Which statement explaining this action could be regarded as economically sound?
May/June 2011
The government sets a maximum price for electricity. Which statement explaining this policy could be regarded as valid on economic grounds?
May/June 2011
Cars create market failure. If resources are to be used efficiently, it would be preferable for governments to intervene and influence both the production of cars and their use. Explain the meaning of the terms ‘market failure’ and ‘the efficient use of resources’ and analyse whether economic theory can be used to support this argument.
May/June 2011
The use of cars leads to market failure. To achieve an efficient use of resources it would be better if governments intervened to affect both the production and the use of cars. Explain the meaning of the terms ‘market failure’ and ‘the efficient use of resources’ and analyse whether economic theory can be used to support this argument.
May/June 2011
What is the reason that the government has to fund the production of public goods?
May/June 2012
Why must the government finance the production of public goods?
May/June 2012
Explain, using elasticity of demand, the possible reasons why in some countries private transport has become more widely used than public transport.
May/June 2012
Explain, using elasticity of demand, why a train company might introduce a policy of increasing fares at busy travel times and reducing fares at less busy travel times.
May/June 2012
In which situation is the price system not a possible method for allocating resources?
May/June 2013
Explain why the free market fails to arrive at the correct price for merit goods and demerit goods.
May/June 2013
An economy needs to use its resources as efficiently as possible. That can happen only when firms are permitted to grow larger. Government regulation of firms ought, therefore, to be kept to a minimum. Discuss whether you agree with this statement.
May/June 2013
The market system is not able to allocate resources efficiently. Discuss this view.
May/June 2013
A local council operates a museum. It previously charged an admission fee. It chose to offer free entry in the hope that more people would visit the museum and learn about the history of its area, which the council considers important. What can be said about the museum?
May/June 2014
What economic reason explains why hospitals are frequently constructed and financed by the government?
May/June 2015
Which type of production is most likely to need a government cost-benefit analysis?
May/June 2015
‘The free market is not the route to sustainable, efficient use of economic resources. Even the well-known economist Adam Smith accepted that some government involvement was needed.' Discuss whether government involvement in the economy might overcome the weaknesses of the free market system.
May/June 2015
Which statement gives the strongest justification for government intervention in a free market economy?
May/June 2016
Which government-provided service could be explained using the concept of public goods?
May/June 2016
Outline the functions of the factor enterprise in a modern economy, and explain how enterprise reacts to a rise in demand for a good.
May/June 2016
The concept of allocative efficiency is built on the idea that every person in society is the best judge of their own economic welfare. Which example of government intervention rests on an argument that does not accept this assumption?
May/June 2016
‘Government economic policy rests on the belief that people cannot be relied on to choose what is beneficial for them, but instead sometimes make choices that are harmful to themselves or damaging to the environment (or both). Therefore a free market cannot allocate resources efficiently.’ Do you agree with this view?
May/June 2016
From the privatisation of train and bus services, what result would supporters of a nationalised public transport service be most likely to anticipate?
May/June 2017
A government intends to step into a free market and set output at the level that maximises society’s economic welfare. To meet this aim, what should the government put in place?
May/June 2017
Firms ought to be free to produce in whatever way they choose, and consumers should be free to buy whatever they think they want. Discuss whether this is the most effective way of securing an efficient use of an economy’s resources.
May/June 2017
Under what conditions does the price mechanism cease to operate as a system for allocating goods?
May/June 2018
During 2016–2017, a government allocated $135 billion to the health service. The diagram illustrates healthcare provision in that country. What can we infer about healthcare provision in the country if it were available at zero price?
May/June 2018
Explain why both merit goods and demerit goods are instances of private goods.
May/June 2018
Using an example of each, explain the differences between direct progressive taxes and indirect regressive taxes.
May/June 2018
A government carries out an assessment of the costs and benefits of permitting a leisure company to build a holiday resort in an area of natural beauty. Under what circumstances should the government permit this development to go ahead?
May/June 2018
Which government policy aims to correct ‘market failure’?
May/June 2018
A government is expanding the influence of market forces within its economy. Yet it has introduced temporary maximum price controls. Why could a government that is committed to cutting back central planning bring in price controls?
May/June 2018
The table presents some of the costs and benefits, in $ millions, linked to a road-building project. A government department and a profit-maximising private firm are both thinking about constructing the road. Which of them would be prepared to build the road?
May/June 2018
Consider how far this statement is accurate.
May/June 2018
Which of the following statements about nationalised and privatised industries is correct?
May/June 2019
A government in Southern Africa was uneasy about the market power of a large producer and wanted to assume control of the company. What could be the outcome of this?
May/June 2019
What reasons support government intervention in supplying a merit good such as education?
May/June 2019
Which statement gives the strongest justification for government intervention in a free market economy?
May/June 2020
A government chooses to take over household waste collection by substituting a private company with one of its own enterprises. Why might this decision be justified?
May/June 2020
At present, a country’s railways are operated by private firms. It has been proposed that the government should nationalise the railways. What could be one reason for this?
May/June 2020
In November 2017, the Scottish government put in place a minimum price for alcohol due to the harmful health consequences of drinking alcohol. Which combination of actions is most likely to lead to a failure in reducing the harmful effects of alcohol consumption?
May/June 2020
Explain, with the help of a production possibility curve (PPC) diagram, why scarcity makes choice unavoidable for firms and why every choice has an opportunity cost.
May/June 2020
What might prevent market failure from occurring?
May/June 2020
In a mixed economy, the level of training carried out is not socially optimal. What might account for this?
May/June 2020
In most developed economies, education for children from 4 to 16 years of age is offered free of charge and funded through taxation. Why ought the government to do this?
May/June 2021
In many countries, some goods have to be supplied directly by the government. What would be the strongest argument in favour of this provision?
May/June 2021
Explain whether private goods, free goods and public goods would all be sold within a free market economy.
May/June 2021
A government is expanding the influence of market forces in its economy. However, it has put in place temporary maximum price controls. Why might a government that is committed to reducing central planning choose to introduce price controls?
May/June 2021
A government is giving market forces a greater role in its economy. However, it has introduced temporary maximum price controls. Why might a government that is committed to reducing central planning decide to use price controls?
May/June 2021
Assess the suggestion that a free market economy is neither possible nor desirable.
May/June 2021
Under what circumstances does the price mechanism fail to operate as a system for allocating goods?
May/June 2022
For what reasons might a country's government levy a tax on fuel exports?
May/June 2022
Explain why this flood defence barrier is likely to satisfy the characteristics of a public good.
May/June 2022
Explain how issues such as global warming may be seen as a result of resource misallocation.
May/June 2022
Explain why government intervention may be needed to supply merit goods and consider why this intervention may not always work well.
May/June 2023
One cause of market failure is the presence of public goods. Which policy option would be suitable for dealing with this market failure?
May/June 2023
A government is planning to construct an athletics stadium for the World Games. The stadium would involve high private and external costs, yet it would also raise national pride. Why would it be hard to use cost-benefit analysis to decide whether the stadium should be built?
May/June 2023
A government sets a maximum price for electricity. Which explanation for this policy could be regarded as economically sound?
May/June 2023
One motive for government involvement in the economy is to try to fix a market failure. However, government failure can sometimes happen as well. Which of the following is not a possible cause of government failure?
May/June 2023
In market economies, governments put forward different reasons for intervening in the way an economy works. Which of the reasons given is a normative statement?
May/June 2024
A government sets an effective minimum price for a product and does not intervene further in the market. This policy indicates that the government’s objective is
May/June 2024
With the use of examples, explain how public goods differ from merit goods and assess whether markets will always supply sufficient amounts of both goods.
May/June 2024
What outcome would supporters of a nationalised public transport service be most likely to anticipate from the privatisation of train and bus services?
May/June 2024
What outcome would supporters of a nationalised public transport service most likely anticipate from the privatisation of train and bus services?
May/June 2024
The long-term equilibrium position in perfect competition is often used to show efficient resource allocation in a free market economy. Explain why this is the case and consider what stops efficiency from being attained.
May/June 2024
Which goods are least likely to be distributed by market forces in a mixed economy?
May/June 2025
For what reasons might governments offer free education to children aged 4 to 16 years old?
May/June 2025
Explain what a merit good means and why governments make merit goods such as healthcare available free of charge, and consider why this policy may not always work successfully.
May/June 2025
Using a formula, explain what price elasticity of demand means and assess how important it is for a firm to have price elastic or price inelastic demand for its product.
May/June 2025
In what circumstances could a moral hazard arise?
May/June 2025
Using a diagram, consider whether a market economy can achieve economic efficiency without government intervention.
May/June 2025