Cambridge A Level Economics: Reasons for government intervention in markets (9708) – Practice Questions

These are original questions written for Marlbridge, for revision and practice on this content. They are not reproduced past-paper questions, and they do not replicate the exam’s exact structure, question count or mark tariffs – examination boards hold copyright in their own papers. Use these alongside the official past papers from your board or school.

These questions cover section 3.1 of the Cambridge International AS and A Level Economics (9708) syllabus for examination in 2026, 2027 and 2028: Reasons for government intervention in markets. It is AS Level content and is assumed knowledge for the A Level papers. Every context and figure is invented. Read the study guide and revision notes first. The course hub and printable checklist show the wider syllabus.

Questions

1. State the two characteristics of a public good. [2]

2. A fictional village has 250 households. Each values new footpath lighting at 18 currency units (CU). The lighting costs 3,000 CU.

(a) Calculate the total benefit to the village. [1] (b) Calculate the net benefit of providing the lighting. [1] (c) Explain why a private firm is unlikely to provide the lighting. [3]

3. For each good, state whether it has the characteristics of a public good, with a reason. [3]

• a car park with a ticket barrier
• a sea wall that protects every home in a bay
• a cinema

4. In a fictional market for dental check-ups, quantity is in thousands of check-ups and price is in CU. Perceived demand is P = 60 − 3Q. Demand if consumers were fully informed is P = 72 − 3Q. Supply is P = 6 + 3Q.

(a) Find the market equilibrium price and quantity. [2] (b) Find the quantity and price if consumers were fully informed. [2] (c) State the under-consumption. [1] (d) Explain one reason why consumers might underestimate the benefit of a check-up. [2]

5. In a fictional market for an energy drink, quantity is in thousands of cans and price is in CU. Perceived demand is P = 48 − 2Q. Demand if consumers were fully informed is P = 36 − 2Q. Supply is P = 8 + 2Q.

(a) Find the market equilibrium price and quantity. [2] (b) Find the quantity and price if consumers were fully informed. [2] (c) State the over-consumption. [1] (d) State where the informed demand curve lies relative to perceived demand. [1]

6. Explain two reasons why a government might set a maximum price in a market. [4]

7. A fictional city has a market for student flats. Demand is Qd = 900 − 6P and supply is Qs = 4P − 100, where Q is the number of flats and P is rent in CU a week.

(a) Work out the equilibrium rent and number of flats. [2] (b) The government sets a maximum rent of 80 CU. Calculate the shortage. [2] (c) Calculate the change in the total weekly rent paid. [2]

8. A fictional country has a market for a staple grain. Demand is Qd = 800 − 10P and supply is Qs = 6P − 160, in tonnes, with P in CU per tonne.

(a) Work out the market equilibrium. [2] (b) The government sets a minimum price of 75 CU. Calculate the surplus. [2] (c) Calculate the cost of buying the whole surplus at 75 CU. [1] (d) Calculate the change in consumer spending on the grain. [2]

9. In a fictional market for a harmful drink, a minimum price raises the price from 8 CU to 10 CU. Quantity bought falls from 300 to 270 units.

(a) Work out the price elasticity of demand (PED). [2] (b) Calculate the change in consumer spending. [1] (c) Explain what the result suggests about how well the policy cuts consumption of a demerit good. [2]

10. Assess whether a government should provide a public good, such as flood defences, itself rather than leave provision to the market. [8]

11. In Country A the price of a staple food has risen sharply and the government is considering a maximum price. Evaluate this policy. [10]

Answers

1. It is non-excludable: non-payers cannot be stopped from using it [1]. It is non-rival: one person’s use does not reduce what is available to others [1]. [2] Examiner insight: Give each feature a short explanation, because naming the term alone leaves it unclear whether you know what it means.

2. (a) 250 × 18 = 4,500 CU [1] (b) 4,500 − 3,000 = 1,500 CU [1] (c) Lighting is non-excludable, so a firm cannot stop non-payers using it [1]. Households can free-ride, hoping others will pay, so few will pay voluntarily [1]. The firm cannot earn enough revenue to cover 3,000 CU, so the market supplies none [1]. [5] Examiner insight: A strong explanation links the three steps in order: non-excludable, free-riding, no revenue. A list of the terms with no chain earns less.

3. The car park does not: the barrier makes it excludable [1]. The sea wall does: everyone in the bay benefits, so it is non-excludable and non-rival [1]. The cinema does not: it is excludable and rival, because a seat can be filled [1]. [3] Examiner insight: Verdicts need the reason attached. A bare yes or no does not show the characteristic.

4. (a) 60 − 3Q = 6 + 3Q, so 54 = 6Q [1]. Q = 9 thousand and P = 6 + 27 = 33 CU [1] (b) 72 − 3Q = 6 + 3Q, so 66 = 6Q, so Q = 11 thousand [1]. P = 6 + 33 = 39 CU [1] (c) 11 − 9 = 2 thousand check-ups [1] (d) Benefits appear later, such as avoiding future problems [1], so consumers undervalue it now and buy less than if they had full information [1]. [7] Examiner insight: Link the cause of imperfect information to the quantity bought. A statement that people ignore the check-up is only half the point.

5. (a) 48 − 2Q = 8 + 2Q, so 40 = 4Q [1]. Q = 10 thousand and P = 8 + 20 = 28 CU [1] (b) 36 − 2Q = 8 + 2Q, so 28 = 4Q, so Q = 7 thousand [1]. P = 8 + 14 = 22 CU [1] (c) 10 − 7 = 3 thousand cans [1] (d) It lies below and to the left of perceived demand [1]. [6] Examiner insight: Subtract in the right direction for a demerit good. The market quantity is larger, so over-consumption is market quantity minus informed quantity.

6. First reason: to keep an essential good affordable for low-income households [1], because a price below equilibrium lets more of them buy it [1]. Second reason: to limit price rises where a few sellers could charge a high price or where a shortage has pushed the price up [1], which holds down the cost of living [1]. [4] Examiner insight: Develop each reason with a further step. Two reasons stated with no explanation leave the analysis missing.

7. (a) 900 − 6P = 4P − 100, so 1,000 = 10P [1]. P = 100 CU and Q = 900 − 600 = 300 flats [1] (b) At 80: Qd = 900 − 480 = 420 [1] and Qs = 320 − 100 = 220, so the shortage is 200 flats [1] (c) Before: 100 × 300 = 30,000 CU. After: 80 × 220 = 17,600 CU [1]. Change = −12,400 CU a week [1]. [6] Examiner insight: Use quantity supplied, not quantity demanded, for the rent bill, because only 220 flats are actually let at the controlled rent.

8. (a) 800 − 10P = 6P − 160, so 960 = 16P [1]. P = 60 CU and Q = 200 tonnes [1] (b) At 75: Qd = 800 − 750 = 50 [1] and Qs = 450 − 160 = 290, so the surplus is 240 tonnes [1] (c) 240 × 75 = 18,000 CU [1] (d) Before: 60 × 200 = 12,000 CU. After: 75 × 50 = 3,750 CU [1]. Change = −8,250 CU [1]. [7] Examiner insight: A minimum price above equilibrium cuts what consumers buy, so spending is price times quantity demanded, not quantity supplied.

9. (a) Percentage change in price = 2 ÷ 8 × 100 = 25%, and in quantity = −30 ÷ 300 × 100 = −10% [1]. PED = −10 ÷ 25 = −0.4 [1] (b) Before: 8 × 300 = 2,400 CU. After: 10 × 270 = 2,700 CU. Spending rises by 300 CU [1] (c) Demand is inelastic [1], so quantity falls by a smaller percentage than price rises, and consumption is cut only a little while sellers gain revenue [1]. [5] Examiner insight: Show the percentage changes before dividing, and keep the sign. An answer of 0.4 with no sign and no working hides both the method and the direction of the change.

10. Knowledge: a public good is non-excludable and non-rival [1], so free-riders mean a private firm cannot earn revenue and the market provides none [1]. Analysis: if benefit to society exceeds cost, provision raises welfare [1]. Funding by compulsory tax removes the free-rider option [1]. The state can pay a private firm, so it need not produce the good [1]. Evaluation: the government has to estimate how much people value the good [1], and the money has an opportunity cost in other uses [1]. The case is strongest for goods close to pure public goods, and weaker where people can be excluded and charged, so a judgement should depend on how pure the good is [1]. [8] Examiner insight: A judgement that is supported by a condition, such as how pure the good is, reads as evaluation. A list of drawbacks with no conclusion does not.

11. Knowledge and analysis: a maximum price is set below the market price [1]. It makes the food cheaper for households who obtain it [1], which helps low-income families most because food takes a large share of their spending [1]. At the lower price, quantity demanded rises and quantity supplied falls [1], so a shortage appears [1]. Evaluation: the shortage can lead to queues, black markets and lower quality [1]. Some farmers may stop producing, which makes the shortage worse over time because supply is more elastic in the long run [1]. The gain depends on who gets the food, and those who cannot buy lose [1]. Alternatives such as raising incomes of the poor may reach the aim more directly [1]. A final judgement should say when the policy works best: short-lived, with rationing for fairness [1]. [10] Examiner insight: Mention both gainers and losers and then reach a conclusion. An answer that only lists the shortage is a one-sided account.

Where marks are usually lost

• Treating a good as public simply because the state provides it.
• Naming one characteristic of a public good rather than both.
• Dividing the wrong way when finding under-consumption or over-consumption.
• Using the quantity demanded where the quantity supplied is the one traded.
• Forgetting to substitute the controlled price into both Qd and Qs.
• Applying a ceiling above equilibrium or a floor below it.
• Writing a list of evaluation points and no overall judgement.
• Losing the sign on a price elasticity of demand and not showing percentage changes.

Next steps

• Review the revision notes and the study guide.
• Visit the Cambridge A Level Economics hub and the printable checklist.
• Take one of our free 10-minute diagnostics.
• Book a free trial class.

Official syllabus

Cambridge International, Cambridge International AS & A Level Economics (9708) syllabus for examination in 2026, 2027 and 2028, Subject content, section 3.1 Reasons for government intervention in markets.