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CAIE A-Level Economics 8.1 Policies to Correct Market Failure Question Bank

Practise selecting taxes, subsidies, permits, regulation, provision, property rights or nudges for specific failures and evaluating elasticity, monitoring and unintended effects.

Syllabus
2026–2028
Course
Economics 9708
Level
A2

Exam points

  • match the failure to a targeted tax, subsidy, permit, regulation, provision or information tool
  • draw or calculate how the policy changes price, output, external cost or benefit and welfare
  • evaluate effectiveness through elasticity, information, enforcement, fiscal cost and unintended outcomes

Covered syllabus points

8.1.1—Policies for market failure8.1.2—Government failure

8.1 Government policies to achieve efficient resource allocation and correct market failure question 1

[Maximum number: 1]

What is the essential feature of nudge theory?

A

the aim of satisficing

B

the establishing of a legal requirement

C

the existence of a contestable market

D

the idea of persuasion

8.1 Government policies to achieve efficient resource allocation and correct market failure question 2

[Maximum number: 1]

To reduce the damage done by cigarette smoking, the government of a country increases the indirect tax on cigarettes and makes it illegal to smoke in public.

Which combination of circumstances is most likely to result in government failure in its attempt to reduce the damage done by cigarette smoking?

price elasticity of
demand for cigarettes

government spending
on law enforcement

> 1

high

> 1

low

< 1

high

<1

low

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