Externalities (Edexcel IGCSE Economics): Exam Questions

What is meant by the term social costs?

What is meant by the term external benefit?

State one example of an external cost.

Which one of the following is an example of an external benefit?

Which one of the following is the formula for social benefits?

There are plans to build a $296m residential tower in the business district of Sydney, Australia, but some local people do not want the tower to be built.

With reference to the data above and your knowledge of economics, analyse the possible external costs that may occur during the building of the residential tower.

It is estimated that about 24 million tourists visit Venice, Italy each year. This high number of tourists means that the city is very overcrowded.

In January 2023, a new tourist tax was introduced on people visiting Venice. Tourists need to pay between €3 and €10 for each day they are in Venice. The higher €10 rate is paid at peak times, reducing to €3 during quieter periods.

(Source: adapted from https://veneziaautentica.com/venice-tourist-tax/ (opens in a new tab))

With reference to the data above and your knowledge of economics, assess the likely effectiveness of the tourist tax in dealing with negative externalities, such as overcrowding.

The education system in Japan is one of the best in the world. Primary and secondary education is free, with a typical school day from 08:00 to 15:00 or 16:00, depending on the age of the students.

(Source: adapted from https://www.internations.org/japan-expats/guide/education (opens in a new tab))

With reference to the data above and your knowledge of economics, analyse why education in Japan may be an external benefit.

State the formula for social benefits.

Regulation was introduced by the German Government in an attempt to reduce the number of plastic bottles being thrown away. A fee of €0.25 is added to the price of a product but is refunded when the bottle is returned. The new scheme is cheaper for the government and 98.5% of the bottles are now returned.

With reference to the data above and your knowledge of economics, analyse the likely impact on externalities of this type of regulation.

It is estimated that 23 billion bricks are made each year in Bangladesh. The industry employs over one million people. Demand for bricks is rising due to growth in the construction industry. The production of bricks contributes to the severe air pollution in the country by emitting smoke and dust clouds. Children, the elderly, pregnant women and those with a respiratory or heart condition may be especially affected by the poor air quality.

(Source adapted from: https://undark.org/2018/09/05/air-pollution-dhaka/ (opens in a new tab))

With reference to the data above and your knowledge of economics, assess the extent to which the costs of producing bricks in Bangladesh are external costs.

In 2019, the National Health Service (NHS) in England began a campaign to check the records of all children who had been given the measles, mumps and rubella (MMR) vaccination. Those children missing the MMR vaccination were then invited to make an appointment to receive the vaccination.

(Source adapted from: https://www.gov.uk/government/publications/mmr-catch-up-for-10- (opens in a new tab)
to-11-year-old-children-information-for-gps)

With reference to the data above and your knowledge of economics, analyse why vaccinations may be an external benefit.

Which one of the following is an example of an external cost?

State the formula for calculating social costs.

High pollution levels in the busy Indonesian city of Jakarta are mainly due to the large volume of traffic. There are over 17 million vehicles registered in the area, each emitting fumes into the environment. The number of vehicles is increasing.

In 2007, government regulations were introduced to reduce the volume of traffic in the city. For example, every Sunday morning, over 8km of Jakarta’s roads are traffic-free as vehicles are banned. In 2016, it was reported that air quality had improved by 65% compared to the levels before the regulations were introduced.

With reference to the data above and your knowledge of economics, assess the effectiveness of government regulations when dealing with externalities such as air pollution in Jakarta.

There are many reasons for firework displays. The ‘bang’, ‘pop’ and ‘whizz’ sounds, along with wide-ranging displays of colourful sparks are used to celebrate religious festivals and historical occasions, as well as private and public events. Some events charge an entry fee but people are still able to see and hear the fireworks without entering the venues. Former military personnel have complained this can bring back negative memories relating to war experiences. It can also disturb animals that are frightened by the loud noises.

With reference to the data above and your knowledge of economics, assess whether fireworks have more negative than positive externalities.

Sea cucumbers are marine animals that have an important role in keeping the coral reef ecosystem healthy. US firm, Orient Seafood Production (OSP), has been fined $1.5m for over-harvesting sea cucumbers. Harvesting sea cucumbers is legal in the US. There is a limit on the quantity allowed to be harvested due to their positive impact on the coral reefs.

OSP was accused of under-reporting harvests by 113,400 kg during a two-year period. Before he paid the fine, the firm’s owner had made high profits from sales to China, where there is an increasing demand.

(Source adapted from: https://www.independent.co.uk/news/world/americas/sea-cucumbers-prison-over-harvesting-orient-seafood-production-hoon-namkoong-washington-a8562046.html (opens in a new tab))

With reference to the data above and your knowledge of economics, assess the effectiveness of government fines when dealing with externalities such as over-harvesting sea cucumbers.

What is meant by the term external costs?

Describe one reason why congestion is an example of an external cost.

Who should have the flu injection?

Flu is an unpredictable virus that can cause mild or unpleasant illness in most people. It can cause severe illness and even death among vulnerable groups, including older people, pregnant women and people with other health problems. These groups may, therefore, receive a free vaccination in the UK, to ensure they are protected against the virus. Although most people receive their vaccination from a public sector doctor, the UK Government has to pay private sector pharmacies to also provide this service. The cost to the UK Government of funding these vaccinations is over £100m per year.

(Source: adapted from Link (opens in a new tab))

With reference to the data in ‘Who should have the flu injection?’ and your knowledge of economics, assess whether the cost to the UK Government of funding the flu vaccination can be justified.