Reasons for government intervention in markets — Paper 1 · A Level Economics 9708

13 The diagram shows the demand and supply curves for parking spaces in a hospital car park. S price P D O number of spaces The managers decide to rely on the price mechanism to allocate parking spaces at the hospital most effectively. What is required in order for this to work? A Alternative means of transport must be provided for those unable to afford price OP. B A survey will be needed to find out the amount users are willing to pay. C The capacity of the car park will need to be expanded. D The price charged for parking spaces must be OP.

1 marks

Answer: D

This question in 9708/11 May/June 2006

13 What would cause a failure of the market mechanism’s rationing function? A falling prices B price controls C rising profits D self interest

1 marks

Answer: B

This question in 9708/11 Oct/Nov 2009

15 Despite much opposition, the local government in a popular tourist resort built a leisure centre and swimming pool which is open to everyone. Many tourists visit the centre. Local residents are charged a reduced entry fee. How would economists classify this service? A It is a demerit good because some people objected to the development. B It is a merit good because the entry fee is reduced for local residents. C It is a private good because there is an entry fee for all users. D It is a public good because it is open to everyone and provided by the local government.

1 marks

Answer: C

This question in 9708/11 Oct/Nov 2009

16 What is a merit good? A a good that is made available to consumers according to merit B a good that the government believes consumers will buy too little of if it is provided by private enterprise at market prices C a good where any benefit obtained by one consumer is extended to all consumers D a good where the private benefits of consuming the good exceed its social benefits

1 marks

Answer: B

This question in 9708/11 Oct/Nov 2011

14 What is a merit good? A a good that is made available to consumers according to merit B a good that the government believes consumers will buy too little of if it is provided by private enterprise at market prices C a good where any benefit obtained by one consumer is extended to all consumers D a good where the private benefits of consuming the good exceed its social benefits

1 marks

Answer: B

This question in 9708/13 Oct/Nov 2011

16 Why does the production of public goods have to be financed by the government? A One person’s consumption of a public good means it is not available for anyone else. B People are able to consume public goods without paying for them. C Private sector firms will charge a price significantly above cost for public goods. D The cost of producing public goods is higher in the private sector.

1 marks

Answer: B

This question in 9708/12 May/June 2012

14 In the diagram, Q1 is the quantity produced of a good as the result of market forces. S2 (social cost) S1 (private cost) price D O Q1 quantity What concept is present at output Q1? A a government subsidy B a negative externality C a positive externality D price instability

1 marks

Answer: B

This question in 9708/11 Oct/Nov 2012

11 A country’s government announces that the penalties imposed on those found guilty of supplying an illegal drug to others are to be increased but that possession of small quantities of the drug for an individual’s own use will no longer be illegal. What effect are these changes likely to have on the illegal market price of that drug and on the quantity consumed? illegal market quantity price consumed A increase decrease B increase uncertain C uncertain decrease D uncertain uncertain

1 marks

Answer: B

This question in 9708/12 May/June 2013

15 Which statement about the provision of goods is correct? A Governments and private producers supply merit goods. B Governments and private producers supply public goods. C Governments are unable to supply private goods. D Governments subsidise the production of demerit goods.

1 marks

Answer: A

This question in 9708/13 Oct/Nov 2014

13 What is an economic reason why hospitals are often built and funded by the government? A Hospitals are a public good. B Hospitals are very expensive to build and run. C Hospitals cannot use price to allocate demand. D Hospital treatments may benefit many apart from those who use them.

1 marks

Answer: D

This question in 9708/11 May/June 2015

14 In 2011, the Health Ministry in a country encouraged parents to have their children vaccinated against measles. The parents did not have to use the vaccine and did not have to pay for it. The government cancelled other projects to fund the programme from taxation because research concluded that the vaccine benefited the community by preventing the spread of a serious illness. Which concepts are implied in the above statement? A external benefit, public sector, opportunity cost B market mechanism, fiscal policy, public good C merit good, normative statement, regulatory control D private cost, social benefit, monetary policy

1 marks

Answer: A

This question in 9708/12 Oct/Nov 2015

17 Which statement is correct? A A demerit good is overconsumed. B A demerit good produces zero consumer surplus. C A merit good is defined by its non-excludability and non-rivalry. D A merit good is provided free of charge.

1 marks

Answer: A

This question in 9708/13 Oct/Nov 2015

18 As part of a privatisation policy, a government deregulates bus services and sells off its public sector bus services to the private sector. What is least likely to occur following these changes? A Bus fares are increased. B Bus service companies invest in new buses. C Extra bus service companies enter the market. D Loss-making bus services are retained.

1 marks

Answer: D

This question in 9708/12 Feb/March 2016

2 Which statement is the most valid reason for government intervention in a free market economy? A Consumers are well informed, making it difficult for producers to make profits. B Health and education are not available in sufficient quantities. C Producers are motivated by profit maximisation. D There are many competitive firms and not enough sole suppliers.

1 marks

Answer: B

This question in 9708/13 May/June 2016

17 Which goods will be provided only by the government? A capital goods B inferior goods C merit goods D public goods

1 marks

Answer: D

This question in 9708/13 Oct/Nov 2016

18 Which circumstance is not likely to represent a strong case for an industry to be nationalised? A In the private sector, the industry would cause significant inequalities of supply between different areas of the country. B The industry would allow firms outside of the industry to enter easily. C The industry would be unprofitable as a private enterprise but generates large benefits for the rest of society. D The industry would experience such economies of scale that it can support only one firm.

1 marks

Answer: B

This question in 9708/12 Feb/March 2017

12 What would prevent the operation of the market mechanism’s rationing function? A falling prices B price controls C rising profits D self interest

1 marks

Answer: B

This question in 9708/12 May/June 2017

18 Health services in an economy are provided by private clinics that charge high fees. The government decides health services should be provided for everyone, not based on ability to pay. Which direct action should it take? A Build government clinics to compete in the market. B Close private clinics where provision by the market is inadequate. C Increase the taxes on profits made by private clinics. D Nationalise private clinics and remove charging.

1 marks

Answer: D

This question in 9708/12 Oct/Nov 2017

4 Many governments are concerned that the high sugar content in fizzy drinks might lead to health problems such as obesity. These governments are also concerned about the lack of public awareness of the dangers. What can be concluded from this? A Consumers of fizzy drinks have information failures. B Consumers under-consume fizzy drinks. C Fizzy drinks are merit goods. D Fizzy drinks are non-excludable.

1 marks

Answer: A

This question in 9708/13 Oct/Nov 2017

4 The Bureau of Alcohol, Tobacco, Firearms and Explosives is a branch of the United States Government which regulates markets. What does its name imply is most likely to be its main responsibility? A to prevent harm from demerit goods B to provide subsidies for essential goods C to raise revenue from goods in elastic demand D to safeguard employment in manufacturing industry

1 marks

Answer: A

This question in 9708/12 Feb/March 2018

18 What is the major problem associated with a government directly providing the correct amount of a public good? A competition from private producers B estimation of demand C increased trade diversion D rivalry in consumption

1 marks

Answer: B

This question in 9708/12 Feb/March 2018

9 The diagram shows S1 and D1, the original supply and demand curves for fast food in an economy. Point X is the original equilibrium. Fast food is an inferior good. What would be the new equilibrium position following a tax imposed on fast food and a fall in real income? S2 price S1 A S3 D X B C D2 D1 D3 O quantity

1 marks

Answer: A

This question in 9708/12 May/June 2018

17 In 2016–2017 a government spent $135 billion on the health service. The diagram shows the provision of healthcare in that country. S price ($) P D O Q quantity What can we deduce about healthcare provision in the country if it were provided at zero price? A At price P the benefits to society are maximised. B It is non-rival in consumption. C It is unlimited in supply due to government funding. D It will need rationing as it will be overconsumed.

1 marks

Answer: D

This question in 9708/12 May/June 2018

17 A flood-control dam is an example of a good provided directly by a government. Which statement relating to the direct provision of a flood-control dam is not correct? A Direct provision of a flood-control dam allows the government to tackle the failure to provide public goods. B Direct provision of a flood-control dam forces the government to incur an opportunity cost. C Direct provision of a flood-control dam involves the supply of a merit good. D Direct provision of a flood-control dam is an example of government allocation of resources.

1 marks

Answer: C

This question in 9708/13 Oct/Nov 2018

4 What justifies government intervention in the provision of a merit good such as education? A People who pay for education value it more than those who cannot pay. B Private schools have more merit than state schools. C Social costs of providing education outweigh social benefits of education. D Some consumers do not fully recognise the value of education.

1 marks

Answer: D

This question in 9708/12 May/June 2019

15 Which statement is not an argument in support of the process of privatisation? A Private companies are motivated to make the best use of their resources. B Privatisation allows more firms to enter an industry, increasing competition in the market. C Privatisation can create companies that exploit the consumer. D Selling state-owned assets to the private sector raises significant revenue for the government.

1 marks

Answer: C

This question in 9708/13 May/June 2019

14 Which product is most likely to be provided only by the government? A national defence B national health C national museums D national theatres

1 marks

Answer: A

This question in 9708/11 Oct/Nov 2019

14 Why might governments provide free education for children aged 4 to 16 years old? A Consumers are not fully aware of the benefits of education. B Education in a free market system would be over consumed. C Education is a public good and there would be many free riders. D The private costs of education exceed the private benefits in a free market.

1 marks

Answer: A

This question in 9708/12 Oct/Nov 2019

1 Which statement is the most valid reason for government intervention in a free market economy? A Consumers are well informed, making it difficult for producers to make profits. B Health and education are not available in sufficient quantities. C Producers are motivated only by profit. D There are many competitive firms and not enough sole suppliers.

1 marks

Answer: B

This question in 9708/12 May/June 2020

16 A government decides to replace a private company with its own company to collect household waste. Why could such action be justified? A Because waste collection is a public good. B Costs of waste collection are bound to be lower if paid out of local taxes. C Private companies are always less efficient than government companies. D Private companies might put profits before customer needs.

1 marks

Answer: D

This question in 9708/12 May/June 2020

18 A country’s railways are currently run by private firms. It has been suggested that the government should nationalise the railways. What might be a reason for this? A to control prices of railway services B to encourage competition in railway services C to increase the profit incentive D to provide jobs for local people

1 marks

Answer: A

This question in 9708/12 May/June 2020

17 In November 2017, the Scottish government introduced a minimum price for alcohol because of the detrimental health effects of alcohol consumption. Which combination of actions is most likely to lead to a failure with respect to reducing the detrimental effects of the consumption of alcohol? action 1 action 2 A minimum price is set too high effective information provision regarding the health effects of consuming alcohol B minimum price is set too high effective subsidisation of non-alcoholic beverages C minimum price is set too low health benefits of reduced alcohol consumption have been overestimated D minimum price is set too low stricter enforcement of the regulations relating to the sale of alcohol

1 marks

Answer: C

This question in 9708/13 May/June 2020

14 A government decides to privatise a state-owned company. What should the government do to try to ensure that this will result in an improvement in efficiency? A allocate vouchers to all citizens entitling them to a share in the ownership of the company B encourage competition C impose a maximum profit margin D increase business tax rates

1 marks

Answer: B

This question in 9708/12 Oct/Nov 2020

4 A government wants to prevent the spread of an infectious disease by vaccinating all children. Why might vaccination be classified as a merit good? A The benefit to society is equal to the benefit received by the individual. B The good is excludable. C The good is not vital. D The good would otherwise be under-consumed.

1 marks

Answer: D

This question in 9708/13 Oct/Nov 2020

16 Why might a government privatise the railway industry in a country? A Economists classify railway journeys as a public good. B Privatisation would provide funds for investment from a wider range of sources. C Privatised railways would be run to maximise producer surplus. D Railway fares can be taxed to raise money for the government only if railways are privatised.

1 marks

Answer: B

This question in 9708/13 Oct/Nov 2020

18 Education from 4 to 16 years of age in most developed economies is provided at zero price, financed from taxation. Why should the government do this? A In a free market, consumers have imperfect information so do not realise the full personal benefit of education. B In a free market, education is not considered to be a private good. C In a free market, consumers will be unwilling to pay for education. D In a free market, education is non-rival and non-excludable in consumption so zero output would be produced.

1 marks

Answer: A

This question in 9708/12 May/June 2021

14 What is an example of privatisation? A the sale on the market of a French state-owned power-generation company B the sale of a privately-owned water company to a German firm C the takeover of a French car manufacturer by the French government D the purchase of a Swedish pharmaceutical producer by a larger American pharmaceutical producer

1 marks

Answer: A

This question in 9708/11 Oct/Nov 2021

15 What did Adam Smith mean by ‘economy’ when describing his canons of taxation? A The cost of collecting the tax should be low. B The tax should be easy to pay. C The tax should have a neutral effect on the use of resources. D The tax should have a positive effect on aggregate supply.

1 marks

Answer: A

This question in 9708/11 Oct/Nov 2021

16 Why might a government nationalise a private firm? A to gain greater efficiency due to more competition B to increase merit good provision C to increase choice for the consumer D to raise more tax revenue

1 marks

Answer: B

This question in 9708/12 Oct/Nov 2021

15 Why does the production of public goods have to be financed by the government? A One person’s consumption of a public good means it is not available for anyone else. B People are able to consume public goods without paying for them. C Private sector firms will charge a price significantly above cost for public goods. D The cost of producing public goods is higher in the private sector.

1 marks

Answer: B

This question in 9708/13 Oct/Nov 2021

16 The National Library Board of Singapore is a public sector organisation that finances and manages the state libraries. What is the most likely reason for this? A Libraries are public goods. B Libraries are merit goods. C The cost of providing library services would be greater in the private sector. D The opportunity cost to the public sector of providing library services is zero.

1 marks

Answer: B

This question in 9708/12 Feb/March 2022

15 What would be a valid objection to the government provision of goods and services? A There will be an increase in consumer sovereignty. B Only the private sector can provide merit goods. C Tax rates and tax income are likely to fall. D Investment in the private sector might be reduced.

1 marks

Answer: D

This question in 9708/14 May/June 2022

14 In mixed economies, what explains why the provision of certain goods and services will remain under government control? A The market system fails to provide public goods. B Management ideas are hampered by excessive bureaucracy. C Ownership of companies depends on the ease of buying shares. D The profit motive tends to improve efficiency in organisations.

1 marks

Answer: A

This question in 9708/11 Oct/Nov 2022

5 A government wishes to ensure adequate flood defences are provided in its coastal areas. Which action is most likely to be undertaken only by the government? A building the defences B designing the defences C financing the defences D maintaining the defences

1 marks

Answer: C

This question in 9708/13 Oct/Nov 2022

16 Which combination of government measures is most likely to increase the consumption of a merit good? A setting an effective maximum price on the product and paying producers a subsidy B setting an effective maximum price on the product and imposing an indirect tax on producers C setting an effective minimum price on the product and paying producers a subsidy D setting an effective minimum price on the product and imposing an indirect tax on producers

1 marks

Answer: A

This question in 9708/12 May/June 2023

14 A government introduces charges for vehicles using the roads in its capital city. Which characteristic must the roads have for this to be successful in reducing congestion? A The roads must be excludable. B The roads must be merit goods. C The roads must be non-rivalrous. D The roads must be public goods.

1 marks

Answer: A

This question in 9708/11 Oct/Nov 2023

13 What explains the underconsumption of merit goods? A Their value is not fully understood by consumers. B They are unproductive goods and services. C They can only be provided by the government. D They are only provided by private sector businesses.

1 marks

Answer: A

This question in 9708/12 Feb/March 2024

12 A government introduces an effective minimum price for a product but makes no other intervention in the market. This policy suggests that the government’s objective is A to discourage consumption of a demerit good. B to increase the consumption of a merit good. C to reduce the price of a private good. D to support the incomes of producers.

1 marks

Answer: A

This question in 9708/13 May/June 2024

14 A government wishes to intervene in a free market to allocate healthcare at the socially optimal level. Which combination correctly identifies the reason for government intervention in the healthcare market? healthcare healthcare provision of consumption in a production in a information in a free market free market free market A overconsumption overproduction too little B overconsumption underproduction too much C underconsumption underproduction too little D underconsumption overproduction too much

1 marks

Answer: C

This question in 9708/11 Oct/Nov 2024

12 Which policy is most likely to solve the free rider problem caused by public goods? A an advertising campaign B a direct provision by the government C a minimum price D a tax on a substitute good

1 marks

Answer: B

This question in 9708/13 Oct/Nov 2024

13 Why might governments provide free education for children aged 4 to 16 years old? A Consumers are not fully aware of the benefits of education. B Education in a free market system would be over consumed. C Education is a public good and there would be many free riders. D The private costs of education exceed the private benefits in a free market.

1 marks

Answer: A

This question in 9708/12 May/June 2025

13 A flood-control dam is an example of a good provided directly by a government. Which statement relating to the direct provision of a flood-control dam is not correct? A It allows the government to tackle the failure to provide public goods. B It forces the government to incur an opportunity cost. C It involves the supply of a merit good. D It is an example of government allocation of resources.

1 marks

Answer: C

This question in 9708/13 May/June 2025

5 Which merit good is likely to be under-consumed the most? level of imperfect subsidy received information among by producers consumers A high yes B high no C low yes D low no

1 marks

Answer: B

This question in 9708/11 Oct/Nov 2025

16 A government intervenes in the market for good X. It fixes a minimum price above the market equilibrium. Which situation explains why the government would do this? good X reason for intervention A demerit good to decrease consumption B demerit good to increase consumption C merit good to decrease consumption D merit good to increase consumption

1 marks

Answer: A

This question in 9708/13 Oct/Nov 2025