Practice Questions
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How does government intervention typically affect economic welfare in a market economy?
Government action can help fix problems in the market. Other options are incorrect because Some people think that government always makes things worse...
How do subsidies impact allocative efficiency in a market?
Subsidies help lower the cost of production for certain goods. Other options are incorrect because Some think subsidies always cause too much producti...
Which of the following scenarios best illustrates a government intervention that may lead to deadweight loss in a market?
A price ceiling makes goods cheaper, but it can cause shortages. Other options are incorrect because Some think subsidies always help; Many believe ta...
How does government intervention address market failure in the case of public goods, and what role do taxes play in this process?
Taxes help pay for public goods like parks and roads. Other options are incorrect because This idea suggests that public goods can be free without tax...
How can government intervention, such as taxes and price controls, address market failures while maintaining market efficiency?
Taxes can help fix problems in the market. Other options are incorrect because Some people think no taxes mean a better market; Price ceilings are mea...
How does government intervention typically affect market efficiency?
Government actions can change how well markets work. Other options are incorrect because Some people think that government always makes things better;...
What is the primary goal of government intervention in a market economy?
The main aim of government action is to make markets work better. Other options are incorrect because Some think the government helps businesses make ...
What is a primary reason for government intervention in markets experiencing market failure?
Governments step in to fix problems when markets don't work well. Other options are incorrect because Some might think the government wants to make bu...
A government decides to impose a subsidy on electric vehicles. Which of the following outcomes best illustrates the concept of allocative efficiency as it pertains to this intervention?
When the price of electric vehicles goes down, more people can buy them. Other options are incorrect because This option suggests that higher prices l...
How does a subsidy intended to increase production affect market efficiency?
A subsidy can make companies produce too much. Other options are incorrect because This answer suggests that subsidies always help match benefits and ...
Which of the following statements correctly describe the effects of government intervention on market efficiency? Select all that apply.
All the statements misunderstand how government actions affect markets. Other options are incorrect because Some think subsidies always help, but they...
Arrange the following steps in the process of how government intervention affects market efficiency and output levels: A) Government imposes a tax on a good B) Producers reduce output due to higher costs C) Market price increases, leading to reduced consumer demand D) Allocative efficiency is disrupted, causing deadweight loss.
First, the government imposes a tax on a good. Other options are incorrect because This order suggests consumers react before producers; This option p...
In the context of government intervention in markets, when the government imposes a tax, it can lead to a reduction in ________, as the tax creates a wedge between the price consumers pay and the price producers receive, potentially resulting in a deadweight loss.
Allocative efficiency happens when resources are used where they are most valued. Other options are incorrect because Some might think a tax only affe...
Government intervention is to market efficiency as a speed limit is to:
Just like speed limits help keep drivers safe, government rules help keep markets fair. Other options are incorrect because Some might think limits ca...
If a government imposes a subsidy on a good, what is the likely effect on market efficiency?
Subsidies can make producers create more than what is needed. Other options are incorrect because Some might think subsidies always help consumers by ...
A local government decides to impose a subsidy on electric vehicles to encourage their adoption. This subsidy lowers the price for consumers but creates a significant budget deficit for the government. Considering the concepts of allocative efficiency and deadweight loss, what is likely to occur in the market for electric vehicles as a result of this intervention?
The subsidy makes electric vehicles cheaper, so more people buy them. Other options are incorrect because Some might think the subsidy helps everyone ...
How does a subsidy intended to lower the price of a good impact market efficiency?
A subsidy can lead to too much of a good being made. Other options are incorrect because Some might think subsidies help everyone equally; It's a comm...
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