Methods of Government Intervention in Markets
225 questions· page 1 of 23
A government may use a range of methods to intervene in a market to affect both demand and supply.
What is a method which will shift the demand curve for a good?
Options
A an indirect tax
B a subsidy
C direct provision
D provision of information
To help achieve price stability, the government in country F operates a buffer stock scheme, with a minimum price of P1 and a maximum price of P2. The current demand and supply in the market is shown.
What should the government do to ensure the scheme is effective?
Options
A buy an amount equal to GH
B buy an amount equal to KJ
C buy an amount equal to LJ
D do nothing as the equilibrium price is below P1
The diagram shows the impact of a government introducing an export subsidy for its domestic producers of oil.
What will be the effect of this export subsidy on the operation of the domestic market?
Options
A domestic output of oil will increase by 15 million units
B imports of oil will decrease by 25 million units
C the domestic price of oil will decrease by $28
D the domestic price of oil will increase by $8
Too much sugar causes an increase in a consumer’s weight. A government has introduced a ‘sugar tax’ on the consumption of soft drinks that have a high sugar content.
How might this policy help to reduce the number of overweight people?
Options
A Consumers switch to cheaper brands of soft drink with a high sugar content.
B Consumers switch to other high-sugar substitute goods, such as alcohol or sweets.
C The price elasticity of demand for soft drinks is inelastic.
D The tax revenue is spent on education about the dangers of soft drink consumption.
A ......1...... price set below the market equilibrium will cause a ......2...... of the product, and a ......3...... price set above the market equilibrium will cause a ......4...... of the product.
Which words complete gaps 1, 2, 3 and 4?
Options
| 1 | 2 | 3 | 4 | |
|---|---|---|---|---|
| A | maximum | shortage | minimum | surplus |
| B | maximum | surplus | minimum | shortage |
| C | minimum | shortage | maximum | surplus |
| D | minimum | surplus | maximum | shortage |
The diagram shows the demand for and supply of eye tests provided by opticians.
Which policy would enable the government to increase the number of eye tests from OQ1 to OQ2?
Options
A a maximum price of OP3 per test
B a minimum price of OP2 per test
C a subsidy paid to opticians of P3 - P2 per test
D a subsidy paid to opticians of P3 - P1 per test
A government decides to raise most of its revenues from indirect taxes.
What would increase the effectiveness of this policy?
Options
A an increasing trend towards bartering of goods
B increasing interest rates on household savings
C increasing occurrence of informal markets in the economy
D placing taxes on goods and services which have a price-inelastic demand
An indirect tax is imposed on good X.
Which situation is most likely to result in producers bearing a higher burden of the tax?
Options
A price elasticity of demand is elastic
B price elasticity of demand is inelastic
C price elasticity of supply is elastic
D price elasticity of supply is inelastic
Which statement about maximum and minimum prices is correct?
Options
A With an effective maximum price for a product, a shortage will develop.
B With an effective maximum price for a product, the market price will rise.
C With an effective minimum price for a product, rationing will be necessary.
D With an effective minimum price for a product, the market price will fall.
A country depends heavily on the production of an agricultural product, good X. It decides to introduce a buffer stock scheme for good X. The government allocates a fixed amount of money for setting up and running the scheme.
In which situation is the scheme least likely to run out of money?
Options
| ability of new farmers to start growing good X | cost of storing good X | global demand for good X | |
|---|---|---|---|
| A | easy | high | constant |
| B | easy | low | rising |
| C | difficult | high | constant |
| D | difficult | low | rising |