Government intervention will result in a more efficient allocation of resources if

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BlackTom AI · Accepted Answer

The question asks: Government intervention will result in a more efficient allocation of resources if

Option A: consumers are charged for the provision of public goods. In theory, public goods are non-excludable and non-rivalrous, which means charging for them would distort usage and could lead to under-provision rather than increasing efficiency. This makes this option unlikely to explain improved efficiency from intervention.

Option B: it leads to a reduction in the consumption of demerit goods. Demerit goods are those that generate negative externalities or welfare losses when consumed (e.g., tobacco, alcohol, certain drugs). Government measures such as taxes, regulations, or restrictions can reduce consumption, shifting the market toward a more efficient outcome by internalizing external costs and decreasing social harm. This aligns with standard welfare economics reasoning about correcting market failures through intervention.

Option C: it reduces the number of competing firms in an industry. Reducing competition generally lowers dynamic efficiency and consumer welfare, potentially creating deadweight losses. While some interventions aim to regulate monopolies, simply reducing the number of firms does not inherently improve overall efficiency and can instead harm it by reducing competition.

Option D: it leads to a reduction in the subsidies received by firms. Eliminating subsidies can have various effects depending on the market, but a blanket reduction of subsidies does not directly imply a more efficient resource allocation. Subsidies can be used to correct under-provision or to achieve social goals; their removal might cause inefficiencies if those subsidies were addressing market failures or strategic objectives.

In summary, among the choices, the mechanism most consistent with improving resource allocation efficiency through intervention is reducing the consumption of demerit goods, because it directly targets negative externalities and welfare losses associated with those goods.

Government intervention will result in a more efficient allocation of resources if

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Government intervention will result in a more efficient allocation of resources if

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