1. Foundations

Policy Instruments — Quiz

Test your understanding of policy instruments with 5 practice questions.

Practice Questions

Question 1

Which policy instrument is most effective for addressing a positive externality, such as widespread vaccination, by making the beneficial activity more financially attractive to individuals?

Question 2

A government implements a policy that requires all new public transportation vehicles to be electric. This policy primarily utilizes which type of policy instrument?

Question 3

Consider a scenario where a government aims to reduce the consumption of a demerit good, such as tobacco. If the government implements a policy that imposes a specific excise tax on each pack of cigarettes sold, what is the primary economic effect of this policy instrument?

Question 4

Which policy instrument is most appropriate for addressing a situation where there is a lack of public understanding or awareness about a critical health issue, such as the importance of regular exercise?

Question 5

A government introduces a 'cap-and-trade' system for industrial carbon emissions, where a total limit on emissions is set, and companies can buy and sell permits to emit. This policy instrument is an example of: