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Economics (Economics: Markets in Action) Quiz on Market failure and government intervention - Quiz, created by clm3496 on 04/09/2013.

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Market failure and government intervention - Quiz

Market failure and government intervention - Quiz

Question 1 of 5

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1. If the waste discharged into a river has an unpleasant smell and also feed the fish, is it an external cost or benefit?

Select one of the following:

  • It's an external cost.

  • It's an external benefit

  • It can be both an external cost and an external benefit.

Explanation

Question 2 of 5

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2. Why would it be beneficial to subsidise a merit good and impose an indirect tax on a demerit good?

Select one of the following:

  • A subsidy to a merit good will reduce its price and increase consumption and this will be beneficial to the individual and society; while an indirect tax on a demerit good will raise the price, reduce consumption and limit the potential damage to the individual and society.

  • A subsidy to a merit good will increase its price and reduce consumption and this will be beneficial to the individual and society; while an indirect tax on a demerit good will reduce the price, raise consumption and limit the potential damage to the individual and society.

Explanation

Question 3 of 5

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3. What is the difference between direct taxation and indirect taxation?

Select one of the following:

  • Direct taxation is a payment made out of the income and/or wealth of individuals or the income (profits) of a firm. Indirect taxation is usually referred to as expenditure taxation as it is paid on the purchase of specified products and is therefore made only at the point of consumption.

  • Direct taxation is usually referred to as expenditure taxation as it is paid on the purchase of specified products and is therefore made only at the point of consumption. Indirect taxation is a payment made out of the income and/or wealth of individuals or the income (profits) of a firm.

Explanation

Question 4 of 5

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4. If a firm's production process imposed external costs on society while consumption of its product conferred external benefits on society, will the optimal output for society be more or less than the actual output?

Select one of the following:

  • The optimal output for society will be more than the actual output.

  • the optimal output for society will be less than the actual output.

  • The optimal output for society cannot be known without more precise information.

Explanation

Question 5 of 5

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5. When are drugs not a demerit good?

Select one of the following:

  • Drugs given under prescription are not a demerit good.

  • Drugs gained otherwise than prescription are not a demerit good.

Explanation

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