review micro test

Question 1

a demand curve is drawn on the assumption that

Answer 1

factors affecting demand, other than price, remain constant

Question 2

define government failure and give an example

Answer 2

when the government intervenes to correct a market failure but ends up making the situation worse, ie there is a net loss of economic welfare

tax on diesel to reduce road congestion decreases the competitiveness of road haulage firms

Question 3

subsiding consumers - merit good

Answer 3

a subsidy reduces the marginal private cost of consumption an sought to lead to an extension of demand towards the desired social optimum