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15 exam-style questions with model answers, plus 20 quick multi-choice questions — every question on the site for this standard, grouped by the 5 pages of notes they come from.
Write a full answer before you reveal the model one — that comparison is where the marks come from. Every block links back to the notes that teach it.
Explain the difference between a private cost and a social cost, and state what this means for where a free market produces.
Using the SMB/SMC model, explain in detail why a negative production externality causes a market to fail on efficiency, and identify the welfare loss.
Explain why a market outcome can be allocatively efficient and still be judged a market failure. Use models to support your answer, and discuss what this means for how a government should assess an intervention.
A factory's production process creates air pollution affecting nearby residents.
Identify the type of externality, state which curve diverges, and state whether the good is over- or under-provided.
Using the SMB/SMC model, explain in detail why a positive consumption externality leads to a market failure, and identify the welfare loss.
Compare a negative production externality and a positive consumption externality using the SMB/SMC model, and discuss why the same government tool cannot fix both.
State the two characteristics of a public good and explain why the market provides none of it.
Explain in detail how imperfect information causes a market to fail, and explain why regulation is an appropriate intervention.
A regional council must choose between two ways of funding a flood protection scheme: general rates paid by all ratepayers, or a targeted rate paid only by properties on the flood plain.
Justify a recommendation on which is better in terms of both efficiency and equity, referring to the public good model.
Explain what a Lorenz curve shows, and what happens to it when a government introduces a progressive tax and welfare benefits.
Explain in detail why a merit good is under-consumed by the market, giving both reasons, and explain the implications for society.
A government wants to improve access to a merit good for low-income households. It is choosing between a universal subsidy available to everyone, and a targeted grant available only to households below an income threshold.
Justify a recommendation on which intervention is better in terms of both efficiency and equity. Refer to a model in your answer.
Explain how a tax and a regulation each address a negative production externality, and state the effect of each on the market quantity.
Explain in detail the implications for equity and for efficiency of using a tax to correct a negative production externality on a food product.
A city faces a negative consumption externality: traffic congestion imposes costs on other road users, on businesses through delay, and on residents through air pollution.
The council is choosing between a congestion charge and investment in free public transport.
Justify a recommendation on which intervention is better in terms of both efficiency and equity. Refer to a model in your answer.