Essential medicines in Kalistan

Read the extracts and answer the questions that follow.

Text A — Medicine prices

1. Kalistan has set a legal maximum price for a widely used antibiotic. The government wants to support low-income households and promote equity in access to treatment.

2. Pharmacies report shortages because importing the medicine at the controlled price is less profitable. Illegal resale has emerged in some cities.

Text B — Alternative policies

1. The government may subsidize approved importers or supply the antibiotic directly through public clinics. Direct supply would be financed from taxation.

2. Licensing and quality standards apply to all pharmacies. The government argues that government intervention is necessary to prevent unsafe medicines, but monitoring remote sellers is difficult.

Table 1 — Antibiotic market

Antibiotic market conditions in Kalistan.

Table 2 — Public-clinic distribution

Public-clinic antibiotic distribution and annual programme spending in Kalistan.

Electricity affordability in Danubia

Read the extracts and answer the questions that follow.

Text A — Household electricity prices

1. Danubia has imposed a price ceiling on household electricity to support low-income households. Demand has risen, while electricity retailers claim the controlled price does not cover peak-generation costs.

2. Power cuts have become more frequent. The government is considering targeted bill subsidies instead of maintaining the ceiling for every household.

Text B — Supply and standards

1. A state-owned company directly supplies electricity to isolated communities. Extending the grid requires substantial public expenditure but promotes equity.

2. Command and control regulation requires suppliers to maintain reserve capacity and meet reliability standards. Penalties apply when firms fail to comply.

Table 1 — Electricity market at the controlled price

Electricity market at the controlled price

Table 2 — Rural grid extension

Rural grid connections and annual government expenditure in Danubia.

Rental bicycles in Auroria

Read the extracts and answer the questions that follow.

Text A — Supporting urban mobility

1. Auroria subsidizes licensed bicycle-rental firms to reduce commuting costs and support local firms. A subsidy is paid for every verified rental.

2. Rentals have increased, but some payments finance journeys that would have occurred without assistance. Taxpayers question whether the scheme is well targeted.

Text B — Prices and safety

1. The city is considering a maximum hourly rental price. Operators warn that a binding ceiling could reduce maintenance and bicycle availability.

2. New regulation requires helmets, lights and monthly safety inspections. The city also directly provides docking stations in low-income districts.

Table 1 — Bicycle-rental scheme

Annual bicycle rentals and subsidy expenditure in Auroria.

Table 2 — Proposed maximum price

Proposed maximum hourly rental price and daily quantities.

A minimum wage for care workers in Ilyria

Read the extracts and answer the questions that follow.

Text A — Wages in residential care

1. Ilyria has imposed a legal price floor in the labour market for residential-care workers. The government wants to raise low incomes and reduce staff turnover.

2. Care homes warn that higher labour costs may reduce employment or increase fees. Worker shortages had existed in some regions before the policy.

Text B — Supporting care services

1. The government subsidizes each place supplied by licensed care homes and directly operates facilities in remote areas.

2. Command and control rules establish staffing and training standards. The government argues that intervention promotes equity, although inspections are costly.

Table 1 — Care-worker labour market

Care-worker labour market in Ilyria

Table 2 — Remote public-care facilities

Remote public-care facilities before and after expansion.

Household water in Selucia

Read the extracts and answer the questions that follow.

Text A — Water tariffs

1. Selucia limits the tariff charged for a basic monthly quantity of water. The price ceiling is intended to support low-income households.

2. During droughts, demand at the controlled tariff exceeds supply. Utilities claim that low revenue delays maintenance and increases leakage.

Text B — Public supply and conservation

1. The government directly provides standpipes in informal settlements. This expands access but involves queues and public expenditure.

2. Regulations prohibit garden watering during droughts. The government says intervention is needed to influence consumption and improve economic well-being.

Table 1 — Water market during drought

Water market conditions in Selucia during drought.

Table 2 — Public standpipe programme

Public standpipe programme before and after expansion, including the reported information about newly served households.

Solar installations in Ventosa

Read the extracts and answer the questions that follow.

Text A — Supporting solar firms

1. Ventosa pays installers a per-system subsidy to support domestic firms and increase household solar installations. Prices paid by households have fallen.

2. The programme has created waiting lists because qualified installers are scarce. Some subsidies go to wealthy households that could have purchased systems without assistance.

Text B — Standards and public buildings

1. Safety legislation requires installer licences and electrical inspections. Compliance can raise costs but may prevent fires.

2. The government directly installs solar systems on public housing and schools. It argues that this promotes equity and reduces energy bills for users.

Table 1 — Household solar market

Household solar market before and after the installer subsidy.

Table 2 — Public-building programme

Public-building solar programme before and after expansion.

Broadband access in Ormina

Read the extracts and answer the questions that follow.

Text A — Prices and access

1. Ormina has imposed a price ceiling on basic broadband packages. It aims to support households on low incomes and increase internet access.

2. Providers claim that the controlled price reduces investment in network capacity. At peak times, connections are slow and new customers face waiting lists.

Text B — Public networks and standards

1. Municipal authorities directly provide broadband in remote villages. Taxpayers finance construction and operation.

2. Regulation establishes minimum speed and reliability standards. The government views broadband access as important for economic well-being, education and employment.

Table 1 — Basic broadband market

Basic broadband market at equilibrium and the controlled price.

Table 2 — Municipal broadband

Municipal broadband connections and annual expenditure in remote areas of Ormina.

Bread policy in Valmera

Read the extracts and answer the questions that follow.

Text A — Supporting bakeries

1. Valmera has introduced a minimum price for bread to support small bakeries facing rising costs. The binding price floor has increased the quantity offered for sale.

2. Households purchase less bread at the higher price. The government buys part of the unsold output for emergency food reserves.

Text B — Assistance to households

1. Low-income households receive bread vouchers, while school canteens receive subsidized bread. These policies aim to improve affordability without lowering the market price for every buyer.

2. Food-safety legislation requires ingredient labels and regular bakery inspections. Small firms report higher costs, but consumers value improved information and safety.

Table 1 — Bread market at the minimum price

Bread market conditions at the binding minimum price.

Table 2 — Bread-voucher programme

Bread-voucher programme in Valmera

Rent controls in Bellaria

Rapid population growth in the city of Bellaria has increased concern about the affordability of rental housing. The unregulated market for small apartments is shown in Table 1. Quantities are measured in thousands of apartments rented per month.

Monthly rental housing market data for Bellaria, showing quantities demanded and supplied at different monthly rents.

Assume that demand and supply relationships are linear between the points in Table 1.

The city government introduces a maximum monthly rent of L$600. It does not initially provide additional housing or impose rules governing the allocation of apartments. Assume that, when calculating welfare, the apartments available under the rent ceiling are allocated to the consumers with the highest willingness to pay.

A minimum price for rice in Costavia

Rice farmers in Costavia have experienced unstable incomes. The government is considering a guaranteed minimum price under which it will purchase and store all rice that farmers cannot sell to consumers. Table 1 shows the monthly market for rice. Quantities are measured in thousands of tonnes.

Monthly Costavian rice market data showing price, quantity demanded and quantity supplied.

The government sets the minimum price at C$6 per tonne. Before the intervention, rice was sold at the market equilibrium price. Ignore storage costs unless otherwise stated.

An indirect tax on disposable drink cups

The government of Darsenia wants to reduce the use of disposable drink cups and earn revenue. Table 1 compares the weekly market equilibrium before and after a specific indirect tax. Quantities are measured in thousands of packs per week, and the specific tax is charged per pack.

Weekly equilibrium prices and quantity of disposable cup packs before and after a specific tax. Quantities are measured in thousand packs per week, and the tax is charged per pack.

Assume the original market equilibrium was allocatively efficient. For elasticity calculations, use the original price and quantity as the base values.

Subsidies for household heat pumps

The government of Elmont wants to support domestic heat-pump installers and increase household purchases of heat pumps. Table 1 shows the annual market before and after a specific subsidy paid to eligible domestic installers, who are treated as the suppliers in this market.

Elmont heat-pump market outcomes before and after the subsidy; eligible domestic installers are treated as suppliers in the market.

Assume the original market equilibrium was allocatively efficient and that the demand and supply curves are straight lines over the relevant range. For the elasticity calculation, use the original price and quantity as base values.

Direct provision of primary health care

The government of Farona is considering opening publicly operated primary-care clinics in low-income districts. The clinics would charge a small user fee but would otherwise be funded from taxation. Table 1 compares expected annual use before and after the programme.

Expected annual primary-care use and operating-cost data before and after direct public provision.

The government is also reviewing command and control rules for all primary-care providers. Table 2 summarizes the proposed regulation.

Table 2: Proposed command and control regulation for primary-care providers.

Consumer nudges and healthier food choices

The government of Galvia conducted a randomized trial in workplace cafeterias. In treatment cafeterias, healthy meals were placed first, displayed more prominently and labelled with simple nutritional information. All meals remained available at unchanged prices. Table 1 presents the trial results.

Randomized workplace cafeteria trial comparing healthy-meal choices in control and treatment groups.

The government is also considering a specific indirect tax on less healthy meals. Table 2 shows the weekly market before and after the proposed tax. Quantities are measured in thousands of meals.

Weekly market outcomes for less healthy meals before and after the proposed specific tax.

Assume the original market equilibrium in Table 2 was allocatively efficient and that the demand and supply curves are straight lines over the relevant range.