OCR A Level Economics: Government intervention, CBA and government failure (H460) – 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 the OCR A Level Economics (H460) topics “Alternative methods of government intervention” and “Government failure” (Version 3.0, June 2026, first assessment 2021). All figures are invented (“cu” is a currency unit). Links: study guide, revision notes, OCR economics hub, printable checklist and free 10-minute diagnostics.

Questions

1. In Country A the market for a good has demand Qd = 210 - 6P and supply Qs = 4P - 30. Each unit produced imposes an external cost of 5 cu. The government introduces a tax of 5 cu on each unit sold. (a) Find the market price and quantity with no tax. [2] (b) Find the price and quantity once the tax applies. [2] (c) Calculate the tax revenue and the amount paid by consumers. [2] (d) Explain why this tax corrects the market failure. [2]

2. In Country G the market for short vocational courses has demand Qd = 200 - 4P and supply Qs = 8P - 160, so the equilibrium is 30 cu and 80 places. The government pays providers 6 cu for each place. (a) Find the new price and quantity. [2] (b) Calculate the cost of the subsidy. [1] (c) Calculate the cost to the government per additional place. [2]

3. In Country H the housing rental market has demand Qd = 400 - 2P and supply Qs = 3P - 100, so the equilibrium is 100 cu and 200 units. The government sets a maximum rent of 80 cu. (a) Calculate the shortage. [2] (b) Calculate the rent that tenants would be willing to pay for the last unit supplied. [2] (c) Calculate the change in landlords’ total revenue. [2]

4. In Country J demand for wheat is Qd = 600 - 5P. A buffer stock agency holds the price between a floor of 50 cu and a ceiling of 70 cu per tonne. After a bumper harvest supply is Qs = 15P - 280 (free price 44 cu). After a poor harvest supply is Qs = 5P - 200 (free price 80 cu). (a) Calculate the amount the agency buys after the bumper harvest and the cost. [3] (b) Calculate the amount it sells after the poor harvest and its revenue. [3] (c) Calculate the stock left. [1]

5. Plants A and B each emit 100 tonnes. A cap of 120 tonnes is set and each plant receives 60 tradable permits. Abatement costs 5 cu per tonne for A and 9 cu per tonne for B, and each could abate all of its emissions at that cost. (a) Find the total abatement cost when permits cannot be traded. [2] (b) Find the total abatement cost once permits can be traded. [2] (c) Give the range of permit prices at which both plants would trade. [1]

6. A new college costs 800 million cu now. For three years it yields benefits of 400 million cu a year and has running and external costs of 90 million cu a year. (a) Calculate the net present value at a discount rate of 6%. [4] (b) Calculate it at 10% and state what this shows. [2]

7. Explain two reasons why governments intervene in markets. [4]

8. Explain how a public/private partnership might be used to build a new school, and one drawback. [4]

9. Explain how information provision and legislation could each reduce consumption of high-sugar drinks. [6]

10. One firm supplies 70% of a market. Evaluate the effectiveness of competition policy. [8]

11. In Country K the market for a good has demand Qd = 160 - 4P and supply Qs = 4P - 40. Each unit has an external cost of 6 cu. Officials, over-estimating this cost, impose a tax of 10 cu per unit. (a) Calculate the equilibrium price and quantity with no tax, the socially optimal quantity, and the welfare loss with no tax. [3] (b) Calculate the price and quantity with the tax, and the welfare loss compared with the social optimum. [3] (c) Evaluate whether this is government failure. [4]

12. Evaluate whether state provision or a subsidy to private providers is the better way to raise participation in adult education. [12]

Answers

1. (a) 210 - 6P = 4P - 30 [1], so P = 24 cu and Q = 66 [1]. [2] (b) Supply becomes Qs = 4(P - 5) - 30 = 4P - 50 [1]. Then 210 - 6P = 4P - 50, so P = 26 cu and Q = 54 [1]. [2] (c) Revenue = 5 x 54 = 270 cu [1]. Consumers pay 2 cu more on 54 units = 108 cu [1]. [2] (d) Marginal social cost is supply plus 5 cu, so the tax makes the private cost equal the social cost [1]. Output falls from 66 to the social optimum of 54 [1]. [2] Examiner insight: Show the supply equation after the tax before solving, so the curve you shifted is clear.

2. (a) Supply becomes Qs = 8(P + 6) - 160 = 8P - 112 [1]. Then 200 - 4P = 8P - 112, so P = 26 cu and Q = 96 [1]. [2] (b) 6 x 96 = 576 cu [1]. [1] (c) Extra places = 96 - 80 = 16 [1]; 576/16 = 36 cu per extra place [1]. [2] Examiner insight: Dividing by the additional units, not the total, shows how much of the subsidy pays for places that would have been bought anyway.

3. (a) At 80 cu, Qd = 400 - 160 = 240 and Qs = 240 - 100 = 140 [1]. Shortage = 100 units [1]. [2] (b) 140 = 400 - 2P [1], so P = 130 cu [1]. [2] (c) Before: 100 x 200 = 20,000 cu; after: 80 x 140 = 11,200 cu [1]. Revenue falls by 8,800 cu [1]. [2] Examiner insight: Read the price from the demand curve at the quantity supplied; this shows the black-market incentive.

4. (a) At 50 cu, Qd = 600 - 250 = 350 [1] and Qs = 750 - 280 = 470 [1]. The agency buys 120 tonnes at a cost of 120 x 50 = 6,000 cu [1]. [3] (b) At 70 cu, Qd = 250 and Qs = 350 - 200 = 150 [1]. It sells 100 tonnes [1] for 100 x 70 = 7,000 cu [1]. [3] (c) 120 - 100 = 20 tonnes [1]. [1] Examiner insight: Check direction: buying happens at the floor, selling at the ceiling, and the gap at the fixed price is the amount traded.

5. (a) Each plant must abate 40 tonnes [1]: 40 x 5 + 40 x 9 = 560 cu [1]. [2] (b) Total abatement of 80 tonnes is done by A, the cheaper plant [1]: 80 x 5 = 400 cu [1]. [2] (c) Between 5 cu and 9 cu per permit [1]. [1] Examiner insight: Explain why the range has those limits; the numbers alone do not show why trading happens.

6. (a) Net benefit each year = 400 - 90 = 310 million cu [1]. Discount each year by 1.06^n: 292.45, 275.90, 260.28 [1]. Present value = 828.63 million [1]. NPV = 828.63 - 800 = +28.63 million cu [1]. [4] (b) At 10% the present values are 281.82, 256.20 and 232.91, total 770.92, so NPV = -29.08 million cu [1]. The project passes at 6% but fails at 10%, so the decision depends on the discount rate [1]. [2] Examiner insight: Do not discount the 800 million, which is spent now. State the decision.

7. Reason one, correcting market failure: for example, a negative externality leads to over-production [1], so tax or regulation moves output towards the social optimum [1]. Reason two, reducing inequity: for example, access to healthcare depends on income [1], so free state provision widens access [1]. [4] Examiner insight: Name a specific market and its failure; a general statement earns less than a developed example.

8. A private firm finances and builds the school [1], and the government pays over many years for its use [1]. Drawback: the firm needs a profit, so total payments can exceed the cost of public borrowing [1]; contracts are complex and the government may still bear the risk if the project fails [1]. [4] Examiner insight: Link a drawback to cost or risk rather than just calling it “expensive”.

9. Information: labels or campaigns show the health harm [1], correcting under-estimation so private demand falls [1], moving quantity towards the social optimum [1]. Legislation: restrict sales (for example to children) or cap sugar content [1], reducing availability and demand [1]; more certain than persuasion but depends on enforcement [1]. [6] Examiner insight: Say which curve moves for each method; both can be linked to the same diagram.

10. Competition policy investigates abuse of dominance and controls mergers [1]. Benefit: stopping abuse such as predatory pricing allows entry [1], leading to lower prices and more choice [1], and competitive pressure drives innovation [1]. Limits: investigations are slow, costly and rely on cost data the firm holds [1]; the firm may argue economies of scale lower costs [1]; effectiveness depends on barriers to entry [1]. Judgement: effective where the firm abuses its position and entry is possible, less so where it has genuine cost advantages [1]. [8] Examiner insight: End with a verdict that refers back to the 70% share.

11. (a) No tax: 160 - 4P = 4P - 40, so P = 25 cu and Q = 60 [1]. Social optimum: supply plus 6 cu gives Qs = 4P - 64, so P = 28 and Q = 48 [1]. Loss = 0.5 x 6 x 12 = 36 cu [1]. [3] (b) With the tax, Qs = 4P - 80 [1], so 160 - 4P = 4P - 80, P = 30 cu and Q = 40 [1]. Loss = 0.5 x (10 - 6) x (48 - 40) = 16 cu [1]. [3] (c) Output falls to 40, below the optimum of 48, because officials over-estimated the external cost: imperfect information [1]. The tax creates a new loss [1]. However, the loss falls from 36 to 16, a gain of 20 cu [1], so the intervention is better than none; the failure is partial, and the tax could be adjusted as better information appears [1]. [4] Examiner insight: Compare the outcome with doing nothing before calling it government failure.

12. State provision: free at the point of use, so income no longer limits access [1]; this addresses under-consumption linked to external benefits and equity [1]; tax funding has an opportunity cost [1]; a zero price may lead to over-provision beyond the optimum [1]; weaker cost control [1]. Subsidy: lowers the price while providers compete, preserving choice [1]; much of it supports places that would be taken anyway [1]; producers may capture part of it [1]; a positive price may still exclude low-income learners [1]; its size needs an uncertain estimate of the external benefit [1]. Judgement: state provision suits equity and wide access; a subsidy suits where choice and cost control matter and the external benefit is moderate [1]; the better method depends on income of learners and the size of the externality [1]. [12] Examiner insight: Give a reasoned conclusion that names the condition on which the choice depends.

Where marks are usually lost

• Shifting demand when the policy changes supply, or the reverse.
• Treating the whole tax as the rise in price.
• Dividing a subsidy’s cost by the total quantity rather than the extra quantity.
• Reporting a shortage or surplus without the quantity.
• Discounting benefits but not costs, or discounting the cost spent now.
• Listing advantages and disadvantages with no judgement.
• Calling any imperfect policy government failure without comparing it with the original failure.

Next steps

• Review the revision notes and the study guide.
• Check your coverage on the printable checklist and the OCR economics hub.
• Try the free 10-minute diagnostics.
• Book a free trial class.

Official syllabus

OCR A Level in Economics (H460), Version 3.0 (June 2026), for first assessment in 2021, published by OCR. Topics: “Alternative methods of government intervention” and “Government failure”.