Economics Assignment: Test Paper on Government Intervention

Economics Assignment Test composing on Government Intervention on the Price System region A MCQ 1. The following happens when subsidy is introduced by the government, except a) Equilibrium set of the good decreases b) Supply curve of the good shifts to the right c) No shifts in the pauperization curve d) Market ruin dod by unequivocal externalities subjugate 2. The mart has failed if a) Market expenditure of the good decreases b) Many companies be sledding through a recession c) The luck cost of producing the good increases ) immoderate amount of resources is devoted for the production of a good 3. What could be the induce of too little production of a good? a) Increased opportunity cost of producing the good b) Social benefits are not considered c) Presence of controvert externalities d) Private benefits are not considered 4. Which of the following is an example of market failure caused by moral hazard? a) A person mistreated with the let down on _or_ oppress medicin e by a doctor b) High production of cigarettes in a market ) A lighthouse is not available as all fishermen waits for the other to purchase it d) Inaccessibility to education as occult sectors monopolize the education sector and sets a very high determine Section B Case Study Indonesia successfully stabilized domestic rice prices for more than a quarter of a century from 1969 to 1996 (see graphical record below). During that period, domestic prices were roughly equal to world prices on average, but were well less volatile. 1. Describe what could cause the peak in the world rice prices in 1974. 2 2.State and explain a method of government intervention that could cause the stable domestic rice prices in Indonesia and how it is used to stabilize the price. 5 3. get out the graph of the effects of the method you stated in (2) on the crave and supply of rice in Indonesia. 2 4. State one disadvantage of apply the method of government intervention you stated in (2). 1 Section C Essa y 1. Explain the problems caused by externalities and how it can will to market failure. 8 2. What are some methods of government intervention and what are the advantages and disadvantages on using these methods? 8 Virginia JC1 Cromwell firmness of purpose KEY Section A MCQ 1. C 3. B 2. D 4. A Section B Case Study 1. Rightward shift of the world choose curve/ leftward shift of the world supply = higher EP 2. Maximum price control & price stabilization policies to lessen the effects of unplanned fluctuations in rice supply which is price volatility. 1 for stating, 1-2 for explanation -how -purchase excess stocks during surplus production, release devotee stocks during shortage -result roughly stable supply = stable price 2-3 for how max label 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, sociable and external c osts 1 * negative externalities social cost-private cost (external cost) 3 lead to overproduction (external costs ignored by decision maker, price will be bring down) too many 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/ reduce negative externalities Raise gov. s revenue. This revenue could be spent on alternatives disadvantages Difficult to measure the level of negative externality e. g. what is the cost of contamination from a car? Not effective for goods which have inelastic demand subsidies advantages Reduce/overcome positive externalities, higher demand for merit goods disadvantages expensive, gov. could impose higher taxes to cover the cost of subsidies may encoura ge 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 issuance of black markets as people try to overcome shortage