Theme 1 - Market Failure - Taxes and Subsidies
Quiz by Mark Seccombe
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- Q 1/17Score 0
In the diagram, the government grants a subsidy to manufacturers of loft insulation. This shifts the market supply curve from S1 to S2. The total amount spent by the government on subsidies is represented by the area
29OHJR
EKGM
FHJL
OFLR
- Q1
In the diagram, the government grants a subsidy to manufacturers of loft insulation. This shifts the market supply curve from S1 to S2. The total amount spent by the government on subsidies is represented by the area
OHJR
EKGM
FHJL
OFLR
60s1.2.9b - Q2
To reduce production and consumption of the good from Q1 to Q2, the government could impose a
tax of P2 to P1
tax of P2 to P3
minimum price of 0P2
price ceiling of OP3
60s1.4.1a - Q3
The government wants to reduce the amount of air pollution arising from petrol and diesel used in transport. Which one of the following combinations of policies would be most likely to achieve this?
Tax cars going into city centres and use the receipts to reduce tax on petrol and diesel.
Increase new motorway building and the number of city centre car parks
Tax the purchase of cars which are less fuel-efficient and use the receipts to subsidise the development of vehicles which are more fuel efficient
Subsidise the production of fuel-efficient cars and subsidise the prices of petrol and diesel
60s1.4.1a - Q4
The rightward shift of the supply curve from S1 to S2 could be caused by
a reduction in the rate of Value Added Tax (VAT) applied to the good.
the creation of a monopoly by the firms in the industry supplying the good.
a decrease in the cost of the raw materials used in the production of a substitute good.
an increase in the demand for the good.
60s1.2.9a - Q5
Total government spending on the subsidy is shown by the area
GJKF.
NELM.
GHEF
GHLF.
60s1.2.9b - Q6
The abolition of at tax on betting can be shown by the
demand curve for bets shifting to the left.
demand curve for bets shifting to the right
supply curve of bets shifting to the right.
supply curve of bets shifting to the left.
60s1.2.9a - Q7
Assuming the price elasticity of demand for a product is zero, any tax placed on the product will
be paid entirely by the producer.
raise the price of the product by the full amount of the tax
leave the position of the supply curve unchanged.
shift the demand curve to the left.
60s1.2.9a - Q8
As a result of government intervention, the market equilibrium has moved from point E to point F. The good is
an agricultural good subject to a maximum price of OP2.
a public good which has been rationed by the government.
an essential good which has been subsidised
a good which has been taxed.
60s1.2.9a - Q9
The demand curve for the good shifts from D1 to D2, raising the market price from P1 to P2. To reduce the price back to P1, the government could introduce a
subsidy of P1P2 per unit
subsidy of EF per unit.
minimum price of OP1 per unit.
subsidy of GH per unit.
60s1.2.9b - Q10
The initial market equilibrium is at point E. To avoid a misallocation of resources in the market, the government could
set a minimum price of P1 per unit sold.
set a maximum price of P1 per unit sold.
introduce a subsidy of P3P2 per unit produced.
raise price to P2 per unit sold.
60s1.4.1b - Q11
An indirect tax shifts supply from S1 to S2. The amount of tax is
vertical distance JG.
increase in price EF
the horizontal distance KH.
the diagonal distance HG.
60s1.2.9a - Q12
A tax shifts the supply curve from S1 to S2. The amount of revenue raised by the government is shown by
FGHJ
OGHL
EGHK
EFJK
60s1.2.9a - Q13
The subsidy paid per unit of the good sold is
FG
FH
HG
FE
60s1.2.9b - Q14
The free market price of a good with positive externalities is £50 per unit. This failure could be corrected by
imposes a maximum price of above £50 per unit.
sets a minimum price of £50 per unit.
subsidising the free market price.
taxes the free market price.
60s1.4.1b - Q15
Social housing is provided to low income households at rents which are lower than the free market rent. Which of the following explains why it is subsidised
Subsidising low cost housing reduces inequalities in the distribution of wealth.
The unequal distribution of income and wealth caused by the free market results in an unsatisfactory allocation of resources.
Social housing is a public good because it is both non-rival and non-excludable.
There is market failure in the housing market because of the existence of missing markets.
60s1.4.1b
