Economics Assignment: Test Paper on Government Intervention

economics Assignment Test Paper on Government Intervention on the falsely System instalment A MCQ 1. The following happens when subsidy is introduced by the governing, except a) equalizer hurt of the wide-cut decreases b) Supply write out of the good shifts to the right c) No shifts in the implore wind d) Market misery featured by positive externalities outdo 2. The trade has failed if a) Market p sift of the good decreases b) umpteen companies argon going through a recession c) The opportunity approach of producing the good increases ) Excessive amount of resources is devoted for the performance of a good 3. What could be the pay off of as well little production of a good? a) Increased opportunity make up of producing the good b) Social benefits are non considered c) Presence of controvert externalities d) Private benefits are non considered 4. Which of the following is an example of mart harm cause by moral hazard? a) A person mistreated with the wrong medi cine by a compensate b) High production of cigarettes in a grocery ) A lighthouse is non available as all fishermen waits for the separate to purchase it d) Inaccessibility to education as private areas monopolize the education sector and sets a very high impairment Section B Case schooling Indonesia success ampley stabilized domestic rice expenditures for more than a quarter of a century from 1969 to 1996 (see graph below). During that period, domestic expenses were around equal to world prices on average, just now were substantially little volatile. 1. Describe what could cause the peak in the world rice prices in 1974. 2 2.State and explain a rule of government intervention that could cause the immutable domestic rice prices in Indonesia and how it is used to stabilize the price. 5 3. Draw the graph of the do of the method you give tongue to in (2) on the demand and tote up of rice in Indonesia. 2 4. State one disadvantage of apply the method of government inter vention you asseverated in (2). 1 Section C demonstrate 1. Explain the problems caused by externalities and how it can give to market failure. 8 2. What are some methods of government intervention and what are the advantages and disadvantages on employ these methods? 8 Virginia JC1 Cromwell ANSWER KEY Section A MCQ 1. C 3. B 2. D 4. A Section B Case cogitation 1. Rightward shift of the world demand curve/ leftward shift of the world supply = high(prenominal)(prenominal) EP 2. Maximum price learn & price stabilization policies to lessen the effects of chance(prenominal) fluctuations in rice supply which is price volatility. 1 for stating, 1-2 for explanation -how -purchase excess stocks during surplus production, release pilot burner stocks during paucity -result roughly stable supply = stable price 2-3 for how max marks 5 3. 1 for correct demand and supply curve, 1 for drawing maximum price 4. Do not promote efficiency/protect farmers from full competition in world markets Section C Essay 1. definition of externalities 1 private, favorable and external cost 1 * negative externalities social cost-private cost (external cost) 3 maneuver to overproduction (external costs ignored by decision maker, price will be lower) too some(prenominal) resources devoted for production = market failure * positive externalities social benefitsprivate benefits 3lead to underproduction (social benefits ignored, leftward demand curve) too little resources devoted for production = market failure 2. definition of gov. intervention methods regulation, taxes, subsidies, state production * taxes advantages Reduce/overcome negative externalities Raise gov. s revenue. This revenue could be spent on alternatives disadvantages Difficult to throwaway the level of negative externality e. g. what is the cost of pollution from a car? not effective for goods which have inelastic demand subsidies advantages Reduce/overcome positive externalities, higher demand for merit goods disa dvantages expensive, gov. could impose higher taxes to cover the cost of subsidies may shape up ineffeiciency in firms as they rely on gov. aid * maximum price control advantages lower price for consumers, price is less volatile or stable disadvantages lead to lower supply causing shortage, shortage leads to waiting lists and possible emergence of dark markets as people try to overcome shortage