1. In which circumstance would direct provision of a product by the government be least likely?
A when fixed costs are very high
B when the demand for the product is very high but unit costs are low
C when the industry faces large natural barriers to entry
D when the minimum efficient scale of production is above the level of demand at current
prices

2. What would encourage an increase in the number of small firms?
A increasing government regulation of conditions in the workplace
B more risk-averse (cautious) lending policies by banks
C stronger government laws against the growth of monopoly
D tougher penalties in the case of personal bankruptcy

3. What is not a source of market failure?
A imperfect information
B income inequality
C monopoly
D non-excludability

4. A government issues free non-tradeable pollution permits to firms. They specify the maximum
amount of polluting gases these firms are allowed to emit. In a change in legislation, the permits
can be traded with other firms.
Assuming that all other costs and revenues remain the same, what will be the impact on the
profits of the firms that are now buyers or sellers of the permits?

	Profits of buyers of permits	Profits of sellers of permits
A	Decrease	Decrease
B	Decrease	Increase
C	Increase	Decrease
D	Increase	Increase

5. What is an example of ‘nudge’ theory when applied to encouraging healthy eating?
A advertising the benefits of healthy eating
B increasing tax on sugary foods
C introducing a subsidy for fruit growers
D supermarkets putting fruit near cash registers

Answers