Externalities (Edexcel IGCSE Economics): Exam Questions

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.

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.

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.

A city council is considering whether to build a new public library. Explain one reason why building the library might create a positive externality of consumption.

A government is considering offering a subsidy to reduce the cost of adult evening classes in a country with low adult literacy rates. Explain one reason why the government might choose to subsidise these classes.

A cement factory is located close to a residential neighbourhood. Explain one external cost that the factory's production might impose on the neighbourhood's residents.

A national government is reviewing its childhood immunisation programme.

Uptake of the measles vaccine has fallen in several regions, partly because parents only weigh up the direct risk of their own child catching measles.

The government is considering whether to increase funding for free vaccination clinics in these regions.

With reference to the data above and your knowledge of economics, analyse why the consumption of vaccinations might create a positive externality that justifies government funding.

A furniture manufacturer in a small town disposes of wood shavings and chemical varnish waste by burning them in an open yard behind its factory.

Residents in nearby streets have reported a persistent smell and a rise in breathing difficulties since the burning began.

With reference to the data above and your knowledge of economics, analyse how the furniture manufacturer's production is likely to create a negative externality for local residents.

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.

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.

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.

Kenya introduced a Free Primary Education (FPE) policy in January 2003, abolishing school fees for all government primary schools.

Enrolment surged from around 5.9 million pupils in 2002 to over 7.2 million in 2003, a rise of more than 20%, as many children who had previously been unable to afford school fees enrolled for the first time.

However, the sudden increase in pupil numbers put significant pressure on already limited numbers of teachers and classrooms.

With reference to the data above and your knowledge of economics, assess whether abolishing school fees is an effective way to increase the positive externalities of education.

The Niger Delta in Nigeria is home to around 30 million people, most of whom depend on farming and fishing for their food and income.

Between 2011 and 2022, there were over 10,000 recorded oil spill incidents in the region, releasing more than 500,000 barrels of oil into the environment. Oil spills have contaminated rivers and farmland used by local communities.

Despite these environmental problems, oil and gas exports remain central to Nigeria's economy, supplying around 86% of the country's total export earnings.

With reference to the data above and your knowledge of economics, assess whether the external costs of oil spills in the Niger Delta outweigh the economic benefits that the oil industry brings to Nigeria.

In 2015, England introduced a 5p charge on single-use plastic carrier bags in large shops, later raised to 10p in 2021.

Since the charge was introduced, the average number of single-use bags bought per person at major supermarkets has fallen from around 140 a year in 2014 to around 3 a year, a reduction of roughly 97%.

The charge was introduced specifically to reduce the litter and environmental damage caused by discarded plastic bags.

With reference to the data above and your knowledge of economics, assess whether a charge on plastic bags is an effective way to reduce the negative externality of plastic pollution.

Germany abolished tuition fees at public universities in 2014. This policy applies to almost all students, including international students, who pay only a small semester contribution of around €150 to €350.

Germany now has over 400 public universities offering more than 20,000 tuition-free degree programmes.

Some other countries, including the UK and the USA, instead charge substantial tuition fees at public universities, often funded through student loans.

With reference to the data above and your knowledge of economics, evaluate whether abolishing university tuition fees, as Germany has done, is the best way to gain the positive externalities of higher education.

Sweden introduced a carbon tax in 1991 and now charges the highest rate in the world, at over 1,300 Swedish kronor (around $127) per tonne of CO2 emitted.

Between 1990 and 2018, Sweden's greenhouse gas emissions fell by around 27%, while the country's economy continued to grow over the same period.

Emissions from buildings fell by around 87% since 1991, as households and firms switched from oil heating to biofuels and district heating.

With reference to the data above and your knowledge of economics, evaluate whether a high carbon tax, like Sweden's, is the most effective way to reduce the negative externality of carbon emissions.