Economics Multiple Choice Question – 25 September 2017

The home of multiple choice questions for all your KS3, KS4 and KS5 Business Studies, Economics and Accounting requirements.

Economics

Which ONE of the following is an example of market failure?

  1. The price of a good falling to clear the market when there is excess supply
  2. The over consumption of cigarettes owing to consumers’ lack of information
  3. A rise in unemployment caused by an increase in the minimum wage
  4. Consumers experiencing diminishing marginal utility
  5. Companies increase the price of petrol following in oil prices

The UK government allocated £39 billion to defence in 2012/2013. Explain why defence is a public good:
……………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………

This is multiple choice question is suitable for Economics KS5 classes.

The answer is 2 – In economics, a market failure is a situation in which the allocation of goods and services is not efficient. Smoking is a de-merit good. A demerit good is defined as a good which can have a negative impact on the consumer – but these damaging effects may be unknown or ignored by the consumer. Demerit goods also usually have negative externalities – where consumption causes a harmful effect to a third party.The classification of demerit goods is a normative judgment. In defining demerit goods we may assume that people are irrational and make poor choices – often consuming goods which are harmful, degrading or damaging in the long-term. This may be due to poor information or poor decision making. In other words, people may under-estimate the private costs and over-estimate the private benefits. Demerit goods have these two characteristics: a) Harmful, unhealthy to individual consumer & b) have negative externalities i.e. Costs imposed on third parties.

Creative Commons License
This work is licensed under a Creative Commons Attribution 4.0 International License.

Author: stuart001uk2014

Referral marketing, business, economics and accounting s​pecialist & corporate mentor

Leave a Reply

Please log in using one of these methods to post your comment:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google+ photo

You are commenting using your Google+ account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s