Explanation​:

The imposition of the maximum price PMax​ causes excess demand of Q2−Q1​. This excess demand is eliminated when the subsidy shifts the supply curve down.

Choice A is incorrect, as a minimum price could not be imposed if a maximum price is in effect. Further, effective minimum prices cause excess supply.

Choices C and D are incorrect as these indirect taxes would shift the supply curve to the left.

Explanation​:

Ending a milk subsidy would increase the cost of production, causing supply to shift to the left. A fall in the price of coffee would increase demand for milk, as milk and coffee are complementary goods.

Explanation​:
Subsidising public transportation would likely decrease income inequality, as lower-income households devote a higher percentage of their income to public transportation than higher-income households.

Choice B is likely, as a subsidy may require an increase in taxation in the future if the government borrows to fund the subsidy.

Choice C is likely, as cheaper public transportation would reduce demand for private transport, as the two are substitutes.

Choice D is likely, as subsidies cause a deadweight loss, so the price is no longer determined solely by market forces.

Explanation​:
Consumer nudges are typically more allocatively efficient than other forms of government intervention, as they cause consumers to change their behaviour voluntarily. Changes in quantity demanded will therefore be caused by a shift in demand, meaning there will not be a deadweight loss.

Choice A is incorrect, as a price ceiling will cause an oversupply of the good.

Choices B and D are incorrect as both interventions will create a deadweight loss.

Explanation​:

The above blue area is the amount of the indirect tax paid by producers. Producers receive $\text{£}$7 per unit sold, and with a $\text{£}$7 per unit tax on each unit, the new market price is £14. As the initial equilibrium price was $\text{£}$10, producers pay $\text{£}$3 of the tax per unit, and consumers pay $\text{£}$4.

Choice A is incorrect, as that is the amount of the tax paid by consumers.

Choice B is incorrect as that is the total amount of the tax.

Choice D is incorrect as that is total revenue (to the government and producers).

Explanation​:
Statement I is correct: forests are a common pool resource and deforestation is the corresponding tragedy of the commons.

Statement II is correct: the production of cocoa is failing to allocate resources in Chocolattia adequately as evidenced by the presence of poverty, deforestation, drug trafficking and child slavery.

Statement III is incorrect: demerit goods generate negative externalities of consumption, and in the context of this scenario it is the production of cocoa that is generating negative externalities, not its consumption.

Explanation​:
The intersection of MPB and MPC determines the equilibrium price ($\text{\$}$3.50).

The intersection of MSB and MSC determines the socially optimum output (300 000 $kg$). The size of the externality is determined by the vertical distance between MSC and MPC, therefore it is $\text{\$}$1.

Explanation​:
Demand for cigarettes is likely to be inelastic because of their addictive and habit-forming nature, so most of the tax burden will likely be shifted to consumers in the form of higher prices.

Choices A, B and C are all possible outcomes of high indirect taxes on cigarettes.

Choices A, B, and C do not correctly complete the sentence.

Explanation​:
In theory, contracting out should be transparent and fair, but in practice this is not always the case. Contracting out to the private sector can often create opportunities for corruption and lack of transparency.

Choice A is true because the free-rider problem is the reason the private sector will not provide public goods.

Choice B is correct because any government expenditures will always entail an opportunity cost and could be used elsewhere (like building schools or hospitals).

Choice D is correct because public goods generate positive externalities of production and consumption, and they benefit both consumers and society as a whole.

Explanation​:
A non-binding price floor$\text{—}$a minimum price set below the equilibrium price (P1​)$\text{—}$would have no effect on the market. Therefore, the quantity demanded associated with that price (Q1​) would still be the quantity demanded after the imposition of the minimum price.

Choice B is incorrect as Q2​ would be the quantity supplied had the question been about a maximum price.

Choice C is incorrect as Q3​ would be correct if the question was about a maximum price.

Choice D is incorrect as Q2​Q3​ would be the shortage caused had the question been about a maximum price.

Choices A, B, and D do not correctly fill in the blanks in the sentence.

Explanation​:
The deadweight loss is equal to:

[(new price−original price)×(new quantity−original quantity)]/2​

Choice A is the cost of the subsidy.

Choice B is the total revenue after the subsidy is imposed.

Choice C is the result of the above equation, omitting the step of dividing it by two.

Explanation​:
Statement I is correct: infrastructure projects generate positive externalities of production because they lower production costs for businesses and make communication and transport more efficient.

Statement II is correct: government investment in infrastructure projects is an example of direct provision designed to correct the underprovision of infrastructure by the free market.

Statement III is incorrect: infrastructure projects are likely to be under-provided by the free market because of the positive externalities they generate.

Explanation​:
Subsidies granted to cocoa farmers may guarantee them a fairer income, but it will only further encourage unsustainable production by causing increased deforestation.

Market failure is corrected by implementing policies to raise the cost of production, and thus bringing the market equilibrium quantity closer to the socially optimum output:

• Choice A will raise the cost of production for chocolate manufacturers and thus discourage production
• Choice B will increase the cost of clearing forest land and encourage more sustainable use of the common pool resource.
• Choice C will increase the costs of production for all participants in the supply chain and encourage more sustainable and equitable practices.