📚 Learning Guide
Government Intervention and Market Efficiency
easy

Which of the following statements correctly describe the effects of government intervention on market efficiency? Select all that apply.

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Choose the Best Answer

A

Government subsidies can lead to overproduction of goods.

B

Taxes always increase market efficiency by reducing consumption.

C

Allocative efficiency is achieved when marginal social benefit equals marginal social cost.

D

Deadweight loss occurs when market equilibrium is disrupted by government actions.

E

Government intervention is always beneficial for consumer welfare.

Understanding the Answer

Let's break down why this is correct

Answer

Government intervention can affect market efficiency in different ways. When the government steps in, it can help correct problems like monopolies or unfair practices that hurt consumers. For example, if a company raises prices too high because it has no competition, the government might set price limits to protect customers. However, sometimes government rules can also make things less efficient by creating extra costs or delays, like when too many regulations slow down businesses. So, while intervention can help in some cases, it can also have negative effects on how well a market works overall.

Detailed Explanation

All the statements misunderstand how government actions affect markets. Other options are incorrect because Some think subsidies always help, but they can cause too much of a product; It's a common belief that taxes always make things better.

Key Concepts

Government Intervention
Market Efficiency
Allocative Efficiency
Topic

Government Intervention and Market Efficiency

Difficulty

easy level question

Cognitive Level

understand

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