AS Level Economics chapter 3: Government microeconomy intervention MCQs with answers
By Team Megalecture · Updated 4 Nov 2026
52 exam-style questions on Government microeconomy intervention, each with the answer and a short explanation. Ten of them are below to try. The chapter test draws ten fresh questions each time and is marked the moment you finish, with your score by topic.
Reasons for government intervention in markets10 questions
Methods and effects of government intervention in markets24 questions
Addressing income and wealth inequality18 questions
Ten Government microeconomy intervention questions with answers
Try each one, then open the answer. These ten stay the same; the test draws new ones every time.
1. Why do many buffer stock schemes eventually fail?
A
the floor price is set too high, so the agency buys more than it sells
B
the ceiling price is set too high, so the agency's stocks run out quickly
C
the product can be stored cheaply for many years without spoiling
D
the scheme causes the market price to fluctuate more than before
Show answer
Answer: A. If the floor price is above the long-run average market price, the agency buys far more than it sells, and stocks and storage costs grow until its funds run out. A low ceiling, not a high one, would exhaust the stocks.
2. A specific tax of $2 per unit is imposed on a good with a downward-sloping demand curve and an upward-sloping supply curve. What happens?
A
the price paid by consumers rises by exactly $2 and the quantity traded falls
B
the price paid by consumers rises by more than $2 and the quantity traded falls
C
the price paid by consumers rises by less than $2 and the quantity traded is unchanged
D
the price paid by consumers rises by less than $2 and the quantity traded falls
Show answer
Answer: D. The supply curve shifts up by $2. As the price rises, quantity demanded falls, so the new price is less than $2 above the old one and producers bear the rest. The full $2 is passed on only if demand is perfectly inelastic or supply is perfectly elastic.
3. What is the main purpose of an inheritance tax in reducing inequality?
A
to reduce inequality in the wages that employers pay to their workers
B
to raise the incomes of pensioners directly
C
to limit the wealth passed from one generation to the next
D
to encourage all households to save more
Show answer
Answer: C. Inheritance tax takes part of large estates when they pass to heirs, slowing the build-up of wealth within families over generations.
4. A country's Gini coefficient rises from 0.32 to 0.45. What does this show?
A
income has become less equally distributed
B
average income has risen
C
the Lorenz curve has moved closer to the line of equality
D
the poorest households have become poorer in absolute terms
Show answer
Answer: A. A higher Gini coefficient means greater inequality: the Lorenz curve has moved further from the line of equality. It says nothing about average incomes, and the poor may be better off in absolute terms while others gained more.
5. How does state provision of essential services, such as free health care and education, reduce inequality?
A
poor households gain services they could not otherwise afford
B
it raises the money incomes of poorer households each month
C
it is financed by taxes that fall most heavily on the poor
D
it lowers the wealth of rich households directly
Show answer
Answer: A. Free services are a benefit in kind: they do not raise money incomes, but they give low-income households access to health care and education, improving their real living standards and future earning power.
6. A private firm proposes to build a lighthouse and charge passing ships for the service. Why is this likely to fail without government involvement?
A
ships that refuse to pay cannot be stopped from seeing the light
B
each extra ship that uses the light raises the firm's costs sharply
C
ship owners overestimate the benefit of the light
D
the demand for the lighthouse's service is perfectly elastic
Show answer
Answer: A. The light is non-excludable: once it shines, every ship in the area benefits whether it has paid or not, so the firm cannot collect enough revenue. Serving an extra ship costs almost nothing, because the good is non-rival.
7. The Gini coefficient is found by dividing one area on a Lorenz curve diagram by the whole area under the line of equality. What is the area that is divided?
A
the area between the Lorenz curve and the horizontal axis
B
the area above the line of equality in the square
C
the area between the line of equality and the Lorenz curve
D
the area of the whole square diagram
Show answer
Answer: C. The Gini coefficient is the area between the line of equality and the Lorenz curve as a fraction of the total area below the line of equality. It is 0 when the two lines coincide and approaches 1 with extreme inequality.
8. The demand and supply of a good are Qd = 120 − 2P and Qs = 3P − 30, where P is the price in dollars. The government pays producers a subsidy of $5 per unit. What are the new price paid by consumers and the total cost of the subsidy?
A
$25 and $350
B
$27 and $300
C
$33 and $270
D
$27 and $330
Show answer
Answer: D. Producers now receive P + 5, so Qs = 3(P + 5) − 30 = 3P − 15. Setting 120 − 2P = 3P − 15 gives P = $27 and Q = 66, so the subsidy costs 5 × 66 = $330. The price falls by only $3 of the $5; using the old quantity of 60 gives $300.
9. The demand and supply of a good are Qd = 100 − 2P and Qs = 4P − 20, where P is the price in dollars. A specific tax of $3 per unit is imposed on producers. What are the new price paid by consumers and the total tax revenue?
A
$23 and $162
B
$22 and $180
C
$22 and $168
D
$18 and $192
Show answer
Answer: C. With the tax, producers receive P − 3, so Qs = 4(P − 3) − 20 = 4P − 32. Setting 100 − 2P = 4P − 32 gives P = $22 and Q = 56, so revenue = 3 × 56 = $168. The price rises by only $2 of the $3 tax; using the pre-tax quantity of 60 gives $180.
10. A specific tax of $5 per unit is imposed on a good. The price paid by consumers rises by $1. What can be concluded?
A
demand is less price elastic than supply, and consumers bear most of the tax
B
consumers bear $4 per unit and producers bear $1 per unit
C
the whole of the tax has been passed on to consumers
D
demand is more price elastic than supply, and producers bear $4 per unit
Show answer
Answer: D. Consumers pay $1 more, so producers receive $4 less per unit after paying the tax. The side of the market that is less elastic bears more of a tax, so here supply must be less elastic than demand.
Government microeconomy intervention: questions students ask
How many Government microeconomy intervention MCQs are there?
52, each with the answer and a short explanation, across 3 topics: Reasons for government intervention in markets, Methods and effects of government intervention in markets, Addressing income and wealth inequality. Every chapter test draws ten of them, so you can take it many times.
Is the AS Level Economics chapter 3 test free?
Yes. The test, the answers and the explanations are free and need no sign-up. Sign in only if you want your scores kept across devices.
How is the chapter test marked?
The moment you press Finish: your score, the right answer and an explanation for every question, and the ones you got wrong saved in My mistakes to retry.
