Practice Questions
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Which of the following best describes a situation where government intervention may improve market efficiency due to externalities?
When a factory pollutes a river, it harms the environment without paying for it. Other options are incorrect because Some might think free meals help ...
Which of the following scenarios best illustrates the concept of market efficiency being affected by externalities?
When a company pollutes a river, it harms the fishing industry. Other options are incorrect because This option talks about technology lowering produc...
How can taxation impact market efficiency when there is information asymmetry present in the economy?
Taxation can create distortions, which means it changes how resources are used. Other options are incorrect because Some might think taxes help everyo...
How do subsidies impact market efficiency in the context of competition policy?
Subsidies can change the prices of goods. Other options are incorrect because Some people think subsidies always help competition; It's a common belie...
How does government intervention aim to improve economic surplus in the context of welfare economics?
Government helps fix problems in the market. Other options are incorrect because Some might think that stopping competition helps everyone; It's a com...
What does market efficiency imply in an economic context?
Market efficiency means that prices show all the information available. Other options are incorrect because Some people think the government must step...
What is a primary reason for government intervention in a market economy?
Governments step in to make sure businesses compete fairly. Other options are incorrect because Some might think the government wants to get rid of pr...
What is a common example of market failure that may require government intervention?
Externalities happen when someone's actions affect others. Other options are incorrect because Some might think perfect competition is a failure; Pric...
If a government imposes a subsidy on a product to encourage its production, what is the primary effect of this intervention on market efficiency?
A subsidy helps producers make more of a product. Other options are incorrect because Some might think subsidies always raise prices; It's a common be...
In a market experiencing negative externalities, which government intervention is most likely to increase allocative efficiency?
A tax equal to the external cost makes companies pay for the harm they cause. Other options are incorrect because Giving money to affected industries ...
Which of the following statements accurately describe the role of government in correcting market inefficiencies? Select all that apply.
Other options are incorrect because Some think that government actions always make things better; Many believe subsidies help everyone....
Which of the following scenarios best illustrates the role of government in correcting a market inefficiency due to a negative externality?
When a factory pollutes, it harms people and the environment. Other options are incorrect because Offering money to buy electric cars sounds good, but...
In a market characterized by a monopsony, the government can intervene to correct inefficiencies by implementing a __________ to encourage the hiring of more workers, thereby reducing the deadweight loss associated with labor market distortions.
A subsidy is money the government gives to help pay for something. Other options are incorrect because Some might think a tax helps workers, but it ac...
A local government is considering implementing a subsidy for electric vehicles to encourage more environmentally friendly transportation. What is the most likely effect of this subsidy on market efficiency and externalities?
The subsidy helps more people buy electric cars. Other options are incorrect because Some might think subsidies always cause problems; It's a common b...
How do government interventions, such as taxation, impact market efficiency in the presence of negative externalities?
Government actions like taxes can help match what people pay with the true cost to society. Other options are incorrect because Some think taxes fix a...
Government intervention in markets to correct inefficiencies is to allocative efficiency as a monopsony is to:
A monopsony is a market where one buyer controls many sellers. Other options are incorrect because Some might think consumer surplus means more benefi...
Arrange the following steps in the correct order for how government intervention can improve market efficiency in the presence of a negative externality.
First, we need to find out what the negative externality is. Other options are incorrect because Some might think we should just tax the problem right...
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