Economics Concepts and Government Intervention

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What is a potential consequence of firms merging?

Greater competition in the market

Increased product variety for consumers

Higher prices and lower quality products (correct)

Lower prices for goods and services

Which factor is crucial in determining if a good is classified as a private or public good?

The quantity of the good available

Whether the good is free of charge

The market demand for the good

If a price could be charged for it (correct)

What is one potential incentive for more airlines to fly on a specific route?

Increased fuel prices

Higher demand for flights on that route (correct)

Fewer competitors in the marketplace

Government restrictions on airline operations

What is one benefit of increased competition among airlines for consumers?

Lower prices for tickets (A) Signup and view all the answers

What does allocative efficiency require for resources in an economy?

Resources move towards increasing demand (C) Signup and view all the answers

What might happen if resources are immobile in an economy?

Under-utilisation of capital equipment (A) Signup and view all the answers

What is an example of geographical immobility of resources?

Workers unwilling to relocate for new jobs (C) Signup and view all the answers

How can a country experience unemployment despite high demand for certain services?

Due to resources being occupationally immobile (A) Signup and view all the answers

Which of the following types of goods is most likely to require government financing?

Public (C) Signup and view all the answers

What is a potential external benefit of a government subsidy for rail travel?

Reduced congestion on roads (C) Signup and view all the answers

If a firm decides to install new equipment to reduce pollution, how do private and external costs change?

Fall; rise (B) Signup and view all the answers

Which argument supports state intervention in an economy?

To prevent private sector firms from overcharging consumers (D) Signup and view all the answers

Who primarily decides what is produced in a market economy?

Consumers (A) Signup and view all the answers

What is a likely consequence of implementing a maximum price in a market?

Shortages of goods (D) Signup and view all the answers

In which scenario would external costs likely increase?

A firm increases its output without improvement (B) Signup and view all the answers

Which of the following is NOT a reason for government intervention in the economy?

Ensure government revenue growth (A) Signup and view all the answers

What is considered as legal tender in most countries?

Coins and bank notes (D) Signup and view all the answers

Which of the following is NOT a function of money?

Measure of wealth (C) Signup and view all the answers

Why is money considered a better store of value than perishable items?

It does not deteriorate over time. (B) Signup and view all the answers

Which method is NOT typically used to transfer money between bank accounts?

Cash transactions (C) Signup and view all the answers

In the context of money, what does the term 'unit of account' refer to?

The measurement of value for pricing items. (C) Signup and view all the answers

What is the most widely used form of money in terms of payment value?

Bank accounts (C) Signup and view all the answers

How does money facilitate economic transactions?

By functioning as a medium of exchange. (C) Signup and view all the answers

Which of these statements about bank accounts is true?

They can be refused as payment for debts. (D) Signup and view all the answers

What is one consequence of information failure in a market?

Consumers may end up paying more than required. (A) Signup and view all the answers

What type of information failure occurs when consumers and suppliers have unequal access to information?

Asymmetric information (C) Signup and view all the answers

Which of the following is a prime example of a merit good?

Healthcare services (D) Signup and view all the answers

Why might merit goods be under-consumed in a free market?

Consumers do not appreciate the true value and external benefits. (C) Signup and view all the answers

What external benefit might result from increased consumption of merit goods like healthcare?

Lower incidence of disease spread (B) Signup and view all the answers

Which of the following describes a scenario of asymmetric information?

A mechanic exaggerates the need for repairs to a consumer. (C) Signup and view all the answers

Which of the following actions can governments take to combat the under-consumption of merit goods?

Provide subsidies for consumers or suppliers (C) Signup and view all the answers

What can result from the underproduction of merit goods?

Increased healthcare costs for consumers (C) Signup and view all the answers

What is a potential result of successfully providing information on the benefits of a product?

Increase in demand (A) Signup and view all the answers

In the context of market forces, what happens if demand does not increase despite efforts to inform consumers?

Government action may be necessary (B) Signup and view all the answers

What does the price need to fall to in order to achieve the allocatively efficient quantity Qx?

P1 (B) Signup and view all the answers

What can a government do if consumers undervalue a product significantly?

Provide it free and/or make consumption compulsory (C) Signup and view all the answers

How does a subsidy affect the supply curve?

It shifts the supply curve to the right (C) Signup and view all the answers

What does the term allocatively efficient imply in the context of public goods?

Total utility is maximized for society (A) Signup and view all the answers

What example is given to illustrate the concept of compulsory consumption?

Inoculation against diseases (C) Signup and view all the answers

Which of the following is an effect of shifting the supply curve right due to a subsidy?

Increase in the allocatively efficient quantity (C) Signup and view all the answers

Which of the following statements best describes monopoly power?

It may result in reduced efficiency in responding to consumer demands. (C) Signup and view all the answers

What is price fixing?

When multiple firms agree to charge the same high price. (A) Signup and view all the answers

Which of the following is a characteristic of a public good?

It can be consumed by multiple users simultaneously. (D) Signup and view all the answers

Why might market failure occur in situations of monopoly?

There is no competition to encourage efficiency. (D) Signup and view all the answers

What is one way governments prevent abuse of market power?

Making price fixing illegal. (D) Signup and view all the answers

Which example is categorized as a public good?

Lighthouse protection for shipping (A) Signup and view all the answers

What might indicate a firm is abusing its market power?

Increasing prices without improving product quality. (A) Signup and view all the answers

Which of the following is NOT a potential effect of a monopoly?

Increased competition. (A) Signup and view all the answers