Edexcel A Level Economics A
Edexcel A Level Economics A 1.4 Government Intervention Exam Questions
Free Edexcel A Level Economics A exam questions on 1.4 Government Intervention, with mark schemes. Covers taxes, subsidies, price controls, tradable permits, regulation and government failure.
1.4 Government Intervention exam questions
1 question pack of real past exam questions with its mark scheme. Answer every question without notes, then mark your answers line by line against the mark scheme.
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Edexcel A Level Economics A 9EC0 Flashcards (Anki & Quizlet)
Every answer is written in mark scheme wording, so you learn exactly what examiners give marks for. Use them on Anki or Quizlet, then test yourself with the questions on this page.
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About Edexcel A Level Economics A 1.4 Government Intervention
1.4 follows directly from market failure: once you can show why a market fails, you need to evaluate how governments correct it and why intervention can make things worse.
What you need to know
- Methods of intervention Indirect taxes, subsidies, maximum and minimum prices, tradable pollution permits, state provision of public goods, provision of information and regulation.
- Diagrams Show how each method moves the market towards the social optimum, for example a tax equal to the external cost shifting supply to MSC.
- Evaluation Consider PED, the difficulty of valuing external costs, administrative costs, unintended consequences and whether the policy is the least distorting option.
- Government failure Intervention that causes a net welfare loss. Causes include distortion of price signals, unintended consequences, excessive administrative costs and information gaps.
Common mistakes in 1.4 Government Intervention
- Evaluating a tax without mentioning PED. If demand is inelastic, consumption falls very little.
- Describing government failure as "the policy not working". It is when intervention causes a net welfare loss.
- Drawing a maximum price above equilibrium, where it has no effect.
- Forgetting that subsidies have an opportunity cost for the government.
Try three 1.4 Government Intervention exam-style questions
1. Explain one disadvantage of using an indirect tax to reduce cigarette consumption. (3 marks)
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Demand for cigarettes is price inelastic because they are addictive (1), so the tax causes only a small fall in quantity demanded (1). It is also regressive, taking a larger share of income from low income households (1).
2. Define government failure. (2 marks)
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When government intervention in a market (1) leads to a net welfare loss compared with the free market outcome (1).
3. Explain how a maximum price set below the equilibrium price causes a shortage. (3 marks)
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At the lower price quantity demanded rises (1) and quantity supplied falls (1), so demand exceeds supply and there is excess demand, which may lead to queues or black markets (1).
1.4 Government Intervention FAQs
What does Edexcel A Level Economics 1.4 cover?
Government intervention to correct market failure through taxes, subsidies, price controls, tradable permits, state provision, information and regulation, plus government failure.
How do I evaluate a government policy?
Consider elasticity, the size of the tax or subsidy relative to the externality, costs of administration, unintended consequences and alternative policies.
What is the difference between market failure and government failure?
Market failure is a misallocation of resources by the free market. Government failure is when intervention to fix it creates a further net welfare loss.
Revise this topic with flashcards: Edexcel A Level Economics A 9EC0 Flashcards, with mark scheme answers for Anki and Quizlet.
