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- 1. Multiple Choice
What indicates the existence of external costs in an economy?
Private costs of production are more than social benefits.
Private costs of production are less than social costs.
An international trade deficit has caused the country to be in debt.
National companies have borrowed from foreign investors.
- 2. Multiple Choice
A developer built some large houses in a rural area which poorer people could not afford. The houses destroyed an area of natural beauty. What type of market failure resulted from the development?
inequality of income
ignoring external cost
lack of information
price discrimination
- 3. Multiple Choice
The following is a headline from the newspaper.
Car drivers to pay higher taxes
What will result from an increased tax on cars?
reduced number of bus journeys
increased petrol (gas) sales
increased employment in the car industry
reduced external costs of car use
- 4. Multiple Choice
Which is a type of market failure?
an increase in unsold goods because of a change in tastes
an increase in travel time caused by a road accident
an increase in house prices caused by easier borrowing for house buyers
a general increase in the price of hotel rooms in busy summer seasons
- 5. Multiple Choice
Journeys in city centres may be made by bus or by car. What is an external cost of this?
bus fares
license fees for cars
purchase of buses
car fumes and noise
- 6. Multiple Choice
What is an example of market failure?
prices charged to cover social cost
a monopoly making abnormal profit
the closure of small, independent shops in a rural area
the inability of a car producer to achieve economies of scale
- 7. Multiple Choice
What is an example of an external cost?
the cost of industrial pollution
the cost of buying components from suppliers
the cost of bringing about a merger
a company’s transport costs
- 8. Multiple Choice
What is an example of market failure?
a surplus of production in the short-term
an existence of scarcity
a growth of competition
a spread of pollution
- 9. Multiple Choice
Which action by the operators of an airport directly reduces external costs?
the building of a new runway
the payment of a productivity bonus
the stopping of night flights
the reduction of charges for landing aircraft
- 10. Multiple Choice
An international company drilled for oil in deep water and caused a major oil leakage, which affected the jobs of the fishing community. The government ordered the company to close the well and to stop drilling in the area. What are the external costs of this incident?
the costs of closing the well
the costs to the company of drilling the well in deep water
the costs borne by the fishing community
the loss of revenue when the oil company stopped drilling
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