Practise explaining why public goods may be unprovided and merit or demerit goods misallocated, then evaluating whether government action improves on market outcomes.
A government wishes to ensure adequate flood defences are provided in its coastal areas.
Which action is most likely to be undertaken only by the government?
building the defences
designing the defences
financing the defences
maintaining the defences
C
Which combination of government measures is most likely to increase the consumption of a merit good?
setting an effective maximum price on the product and paying producers a subsidy
setting an effective maximum price on the product and imposing an indirect tax on producers
setting an effective minimum price on the product and paying producers a subsidy
setting an effective minimum price on the product and imposing an indirect tax on producers
A
In many countries there are goods that must be provided directly by the government.
What would be the most convincing argument for such provision?
The consumption of these products may be beneficial.
The production of these products may be harmful.
The production of these products have high opportunity costs.
These products are non-rival in consumption and non-excludable.
D