MARKETS & GOVERNMENT
You buy lunch while a café buys ingredients and hires workers. What coordinates these buying and selling decisions through prices?
The market mechanism.
A minister announces: “We want lower unemployment.” Is this a policy objective or a policy instrument?
A policy objective.
The government charges a tax on every tonne of pollution emitted by a factory. Which policy tool is being used?
An emissions tax or pollution tax.
The government sells a state-owned hotel to a private company. What is this process called?
Privatisation.
Analysts estimate next year’s unemployment using current data and assumptions. Are they forecasting or setting a policy target?
Forecasting: estimating what may happen.
A factory sells cheap products, but nearby residents pay for cleaning up its pollution. Which market failure does this illustrate?
A negative externality: some production costs fall on other people.
The government changes taxes and public spending to influence the economy. What type of policy is this?
Fiscal policy.
A city has enough money for either a new park or a health clinic. It chooses the clinic. What economic term describes the benefit sacrificed from the best rejected alternative?
Opportunity cost.
A city keeps ownership of its buses but hires a private company to operate them. Has the city privatised ownership?
No. It has contracted out operations while retaining public ownership.
A government says: “We aim to reduce unemployment to 6% within three years.” Is 6% a forecast or a target?
A target: a desired outcome, rather than an estimate of what will happen.
An online seller knows that a used laptop has a damaged battery but hides this from buyers. Identify the problem and name one policy tool that could reduce it.
Information asymmetry. Mandatory disclosure or an enforceable product guarantee could reduce it.
“Higher fuel taxes may reduce fuel consumption” and “The government should raise fuel taxes.” Which statement is positive, and which is normative?
The first is positive: a testable claim. The second is normative: a judgement about what should be done.
The central bank raises its policy interest rate today, but borrowing and spending change gradually. What explains why the full effect is not immediate?
Policy time lags: transmission through banks, borrowing, and spending takes time.
A state-owned company expects the government to cover every loss, so its managers feel little pressure to control costs. What problem does this illustrate?
A soft budget constraint. Accept moral hazard if the expectation of rescue is explained.
A city expects its population to rise, sets a goal for more school places, and assigns construction tasks, funding, and deadlines. Which part turns the goal into an actionable programme?
Specified activities, responsibilities, funding, and deadlines.
Bread normally sells at the market-clearing price of 5,000 UZS. The government sets a maximum price of 4,000 UZS. With no extra supply provided, what imbalance is likely, and why?
A shortage: quantity demanded exceeds quantity supplied at the lower price.
To support employment during a recession, the government increases spending. If production cannot expand enough to meet the extra demand, which second policy objective may become harder to achieve?
Price stability: additional demand may increase inflationary pressure.
A government has 10 billion UZS. Project A costs 10 billion and generates benefits of 15 billion. Projects B and C together cost 10 billion and generate benefits of 18 billion. All values are comparable. Which option has the higher net benefit, and by how much?
B and C. Their net benefit is 8 billion, compared with 5 billion for A: 3 billion UZS more.
A government sells the only water supplier to a private owner without introducing competition or effective regulation. Why might prices remain high after privatisation?
Monopoly power remains. Changing ownership alone does not create competition.
A training programme aims to place 400 participants in jobs. It places 300. What percentage of the target was achieved? Does this alone prove the programme caused 300 people to find work?
75%. No: some participants might have found work without the programme.
A market reaches equilibrium, but some low-income families still cannot afford basic food. Does equilibrium prove that everyone’s needs are met? Explain what it actually means.
No. Equilibrium means quantity demanded equals quantity supplied at that price; it does not guarantee affordability for everyone.
A government wants both to reduce inflation and protect poor families. Why might one broad price ceiling be insufficient? Suggest two different tools, each matched to one objective.
One tool may not address both problems effectively. Monetary tightening can reduce demand-driven inflation; targeted transfers can protect vulnerable families.
To protect consumers, a government subsidises every consumer loan while the central bank raises interest rates to reduce spending. Do these tools reinforce or weaken each other? Explain.
They work against each other: the subsidy lowers borrowing costs and can weaken monetary tightening.
Two buyers offer the same price for a state-owned factory. Buyer A promises many jobs without a binding agreement. Buyer B accepts enforceable investment and environmental commitments. Which offer is easier to hold accountable, and why?
Buyer B’s offer, because measurable, enforceable commitments can be monitored and sanctioned.
A development plan assumes cheap energy. Energy prices may instead rise sharply. What planning method compares outcomes under several possible futures, and how does it improve the plan?
Scenario analysis. It tests the plan under different assumptions and helps prepare contingency actions.