Cambridge International A Level · Economics (9708)
5 multiple-choice questions marked as you go, and 4 written questions with worked solutions. All on Methods and effects of government intervention in markets.
A government decides to grant a subsidy to producers of organic vegetables. If the price elasticity of demand \( (PED) \) for the product is perfectly inelastic, what will be the effect on the equilibrium price and the benefit to consumers?
A government operates a buffer stock scheme to stabilize the price of wheat. Following a series of exceptionally poor harvests due to drought, the market price remains consistently above the ceiling price \( P_{max} \).
What is the likely long-term consequence for the government?
A government operates a buffer stock scheme to stabilize the price of a primary commodity. In a year of an exceptionally large harvest, which action must the government take to maintain the price within the target range?
In a market for a demerit good, the Marginal Social Cost (MSC) is higher than the Marginal Private Cost (MPC). The government aims to achieve allocative efficiency by imposing a tax.
To reach the socially optimal level of output, the value of the specific tax per unit should be equal to which of the following at the optimal quantity?
In a market where the price elasticity of demand (PED) is highly inelastic, a government imposes a specific indirect tax. What is the most likely outcome?
Distinguish between a specific indirect tax and an ad valorem tax by describing their different impacts on the position of the supply curve.
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In a market where the Price Elasticity of Demand (PED) is perfectly inelastic (\( PED = 0 \)), determine the incidence of a specific tax \( t \) and its impact on the consumer's total expenditure.
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Explain how a buffer stock scheme utilizes a minimum price to support the incomes of agricultural producers during a period of harvest surplus.
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A government provides a subsidy to the producers of solar panels to encourage the use of renewable energy.
(a) With the aid of a demand and supply diagram, explain how the price elasticity of demand \( (PED) \) for solar panels determines the extent to which the subsidy benefits the consumer in terms of a lower market price.
(b) Analyse how the price elasticity of supply \( (PES) \) influences the effectiveness of this subsidy in increasing the total quantity of solar panels traded in the market.
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