Practise 63 real questions on Government microeconomic intervention (further) from 2021 to 2026. See the answer and explanation as soon as you answer.
Government microeconomic intervention (further) is one of the 11 main topics in our A Level Economics (Cambridge (CAIE) 9708) question bank, and about 7% of its real questions come from it. Tayyari Karo has 63 real questions on this topic from 2021 to 2026, from Paper 3, Paper 4; 53 are multiple choice and marked instantly, and the rest are structured questions with a model answer. By difficulty: 31 medium, 22 hard, 10 easy.
Work through the questions below, then open the explanation for each one. Redo the ones you missed a few days later.
These are real past-paper questions. Think of your answer first, then open the explanation.
What causes a market to fail and produce more than the optimum output of an economic good?
Answer: B. the presence of a negative externality
A negative externality means the marginal social cost exceeds the private cost, so the market over-produces.
What could result in an individual being caught in the poverty trap if their income increases?
Answer: B. benefits payments are means-tested
When benefits are means-tested, a rise in earned income causes benefits to be withdrawn (and tax/national insurance may also rise), so net income barely increases or even falls — trapping the individual in poverty despite earning more.
The government can use policies to try and reduce the environmental damage caused by the amount of rubbish (garbage) created by firms and households. Which policy to reduce rubbish is most likely to lead to government failure?
Answer: B. a tax on the amount of rubbish a firm or household creates
A tax on rubbish is difficult to measure and monitor accurately for every firm/household, and can have unintended consequences such as illegal dumping/fly-tipping to avoid the charge, which can worsen rather than reduce environmental damage — an example of government failure (policy intervention leading to a worse outcome, or a misallocation of resources through enforcement costs).
One reason for market failure is the existence of public goods. Which policy option is appropriate for addressing such a market failure?
Answer: A. direct provision of the good by the government
Because public goods are non-excludable and non-rival, the free-rider problem means private firms cannot profitably supply them through the market, so direct government provision (funded through general taxation) is the appropriate policy response.
A government issues free non-tradeable pollution permits to firms, specifying the maximum polluting gases they may emit. In a change in legislation, the permits become tradeable with other firms. Assuming all other costs and revenues stay the same, what will be the impact on the profits of the firms that are now buyers or sellers of the permits?
Answer: B. profits of buyers decrease, profits of sellers increase
Buyers now have to pay for permits they previously did not need to pay for, raising their costs and reducing profit; sellers receive new revenue for permits they don't need, raising their profit.
When there are positive externalities in consumption, what can be concluded about the output of the market?
Answer: C. Output must be below the allocative efficient level.
With positive consumption externalities, marginal social benefit exceeds marginal private benefit. The free market equates marginal private benefit with marginal (social) cost, resulting in an equilibrium output below the socially optimal (allocatively efficient) level, where MSB = MSC — the good is under-consumed/under-produced.
EITHER 2 'Market failure is to blame for climate change and the inefficient allocation of resources. The only solution is for governments to intervene to improve resource allocation.' Assess the extent to which you agree with this statement. [20 marks]
AO1/AO2 (max 14): climate change can be explained as market failure, linked to resource allocation that fails to maximise consumer satisfaction — supportable with a diagram showing allocative efficiency at AR = MC or MSB = MSC. Negative externalities occur when consumption/production imposes costs on society greater than those received by the individual producer (MSC ≥ MPC or MPB ≥ MSB) — a negative 'spill-over' effect leading to overproduction of goods generating CO2/greenhouse gases. Government intervention addresses the failure of market forces to allocate resources efficiently (and positive externalities leading to under-consumption). …
The full model answer is in the app.
Explain what is meant by cost benefit analysis and consider how it might be used by a government to decide whether a new hospital should be built.
Cost benefit analysis (CBA) lets a government consider all costs and all benefits of a project — private and external — and make a rational decision by maximising net benefit; it attempts to identify negative externalities (impacts on third parties) and positive externalities, putting a monetary value on them, and discounts future costs/benefits to a present value where the project takes a long time to complete. Applied to a new hospital: hospitals are large capital projects, costly, with benefits gained mostly over a long period; private costs are supplemented by negative externalities (e.g. effect on local wildlife, increased traffic congestion) and positive externalities (e.g. …
The full model answer is in the app.
| Session | Paper 3 | Paper 4 |
|---|---|---|
| May/June 2026 | 5 | – |
| May/June 2025 | 6 | – |
| October/November 2025 | 7 | 1 |
| May/June 2024 | 6 | – |
| October/November 2024 | 2 | 1 |
| May/June 2023 | 6 | 1 |
| May/June 2022 | 5 | 2 |
| October/November 2022 | 6 | 1 |
| May/June 2021 | 5 | – |
| October/November 2021 | 5 | 4 |
63 real A Level Economics (9708) questions on Government microeconomic intervention (further) from 2021 to 2026, from Paper 3, Paper 4. Each one shows the year, session and paper it came from.
Yes. Every question shows the correct answer and a short explanation the moment you answer.
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