Topic Questions (MCQ – EASY): Government policies to correct market failure – 3auk

What is the trade-off governments encounter when privatizing a state monopoly?

between achieving allocative and productive efficiency

between promoting competition and maximizing privatization revenue

between productive and technological efficiency

between pursuing short-term and long-term profit maximization

When a good, characterized by monopolistic competition, generates external benefits, which statement is likely to be true?

The output of the good is at the socially optimal level.

The output of the good is higher than the socially optimal level.

The private costs outweigh the social benefits.

The social benefits outweigh the private benefits.

The diagram illustrates the supply and demand curves of an industry.

Assuming without externalities, which region in the diagram quantifies the overall reduction in economic welfare when the government imposes restrictions on the level of output at OP?

a+b

b+c

d

b+c+d

What is the fundamental characteristic of nudge theory?

The objective of achieving satisficing.

The establishment of legal requirements.

The presence of a contestable market.

The notion of persuasion.

A government considers fresh fruit and vegetables to be goods with positive social value and provides subsidies to support their production.

What could be a potential negative consequence, or government failure, resulting from these subsidies?

increased accessibility to fresh fruit and vegetables

destruction of wildlife habitats due to land clearance

reduced healthcare costs associated with dietary illnesses

creation of more job opportunities in fruit and vegetable picking

A private company runs a coal mine with 500 employees. The mining activities have resulted in environmental pollution and external costs.

If the government decides to intervene, how can it address the external costs?

halt a portion of the mining operations and import coal from elsewhere

impose an extra tax on the miners' salaries equivalent to the external cost

cover the expenses associated with restoring the environment after mining

impose a tax on the company's output that matches the external cost

Which policy does not aim to address a market failure?

government provision of health care services

elimination of import quotas

implementation of price controls on large firms

regulations to mitigate smoke pollution

Which policy measure is most likely to achieve this objective?

reducing income tax rates

increasing consumer transfer payments

privatizing the provision of the service

providing subsidies to service producers