Market failure — Paper 1 · IGCSE Economics 0455

40 A tax on which of the following would most reduce external costs? A bicycles B bus fares C cars D ferry services

1 marks

Answer: C

This question in 0455/11 Oct/Nov 2004

12 The diagram shows the demand for and the supply of mobile (cell) phones. The market is in equilibrium at point X. What would be the most likely new equilibrium if the government placed an indirect tax on mobile (cell) phones while reducing income tax? S2 S1 C B D price A X D3 D1 D2 O quantity

1 marks

Answer: C

This question in 0455/11 Oct/Nov 2006

39 A government must decide whether to build a new road. The road would bring work to a town, but would destroy part of a forest. Who is most likely to oppose this? A conservationists B road builders C suppliers of road materials D the town’s unemployed

1 marks

Answer: A

This question in 0455/11 Oct/Nov 2006

13 Australian mines are among the world’s largest suppliers of uranium but the mines are contaminating Australia’s natural environment. It is recommended that the mining companies install new equipment which causes less pollution. If this is done, how would it be represented on a demand and supply diagram for uranium? demand curve supply curve A shift to left no change B shift to right shift to left C no change shift to left D shift to left shift to right

1 marks

Answer: C

This question in 0455/11 May/June 2007

25 A government establishes a body to control monopolies and mergers. Who is this intended to protect? A consumers B foreign investors C multi-nationals D the government

1 marks

Answer: A

This question in 0455/11 May/June 2007

38 Why may it be better to increase public expenditure while reducing private expenditure? A Goods and services which the market ignores can be provided. B Government officials are likely to be more careful spending money than private individuals. C The profit motive makes government departments more efficient than private firms. D The government is the best judge of the satisfaction gained from goods and services.

1 marks

Answer: A

This question in 0455/11 May/June 2007

1 What can happen in a planned economy that does not happen in a market economy? A The allocation of resources can take account of the total effects on society. B There can be full employment of factors of production. C There can be inflation. D There can be international trade.

1 marks

Answer: A

This question in 0455/11 May/June 2008

36 In 2001 a government enquiry approved a major new air terminal for London, which would create many new jobs. However, it would also cause extra noise and air pollution. Compensation would have to be paid to some people whose houses would be demolished. What is not involved in this exploitation of resources? A conflicts of interest B free market economy C income creation D opportunity cost

1 marks

Answer: B

This question in 0455/11 May/June 2008

39 What is the main reason why the government, rather than the private sector, builds and runs hospitals? A Hospitals are expensive to build. B The government has enough tax revenue to pay for hospitals. C The government needs to be sure that the doctors are well-trained. D The whole country can benefit from the provision of good health facilities.

1 marks

Answer: D

This question in 0455/11 May/June 2008

36 Which commercial activity will not destroy the natural environment? A intensive fishing in coastal waters using modern fishing boats B large-scale farming using chemical fertilisers C picking apples from trees using local labour D tree felling by timber companies in tropical forests

1 marks

Answer: C

This question in 0455/11 Oct/Nov 2008

7 It was reported in 2002 that South Africa, a mixed economy, would face sharp increases in air and water pollution unless action was taken to develop environmentally friendly policies for its citizens. Why is a mixed economy thought to be a satisfactory means of achieving environmentally friendly development? A because all development is paid for by the government B because it allows external costs to be considered C because it ensures development at lowest cost D because it is the most productive system

1 marks

Answer: B

This question in 0455/11 May/June 2009

9 Which costs will be reduced if a factory decreases the amount of pollution it causes to the environment? A average costs B external costs C fixed costs D variable costs

1 marks

Answer: B

This question in 0455/11 May/June 2009

15 Some travellers complain about the disturbance caused when other people use their mobile (cell) phones. As a result, a UK train operator announces that it will buy some new trains that will have a device fitted to prevent the use of mobile (cell) phones. What will definitely happen to the train operator? A Its average revenue will decrease. B Its total revenue will increase. C Its fixed cost will increase. D Its total cost will decrease.

1 marks

Answer: C

This question in 0455/11 May/June 2009

7 A large supermarket applied to build on land which was an area of natural beauty. The local government allowed the building, even though the natural beauty of the area would be lost, because many jobs would be created and much needed income would be brought to the local community. Which economic ideas cannot be found in the above statement? A external cost and private enterprise B free market and the conservation of resources C opportunity cost and improved standards of living D public sector and external benefit

1 marks

Answer: B

This question in 0455/11 Oct/Nov 2009

9 What is an external benefit when a charge is made for vehicles entering a city centre? A increased government revenue B increased traffic C reduced air pollution D reduced business activity

1 marks

Answer: C

This question in 0455/11 Oct/Nov 2009

22 In 2008 inflation was close to 100 000 % in Zimbabwe. In a bid to reduce this high rate, the Zimbabwean Government imposed maximum prices on a range of products. This caused price rises amongst those goods sold unofficially or illegally. What could explain this? A The maximum prices increased demand whilst reducing supply. B The maximum prices reduced demand whilst increasing supply. C The maximum prices were set above the equilibrium price levels. D The maximum prices were set at the equilibrium price levels.

1 marks

Answer: A

This question in 0455/11 Oct/Nov 2009

6 The diagram shows the demand for and the supply of bread. S price P1 D O quantity A maximum price P1 is fixed by the government. What is likely to be the immediate result of this? A a movement of the demand curve to the right B a movement of the supply curve to the right C a shortage of bread D a surplus of bread

1 marks

Answer: C

This question in 0455/11 May/June 2010

7 The diagram shows the demand for and the supply of bread. S price P1 D O quantity A maximum price P1 is fixed by the government. What is likely to be the immediate result of this? A a movement of the demand curve to the right B a movement of the supply curve to the right C a shortage of bread D a surplus of bread

1 marks

Answer: C

This question in 0455/12 May/June 2010

5 The diagram shows demand and supply curves for a product at its equilibrium price P. S1 S S2 price P D1 D D2 O Q quantity How would the introduction of a subsidy be shown? A Demand would shift to D1. B Demand would shift to D2. C Supply would shift to S1. D Supply would shift to S2.

1 marks

Answer: D

This question in 0455/11 Oct/Nov 2010

8 The diagram shows that when a tax of $2 on a good raises the supply curve from S1 to S2, the price to the consumer rises from $4 to $5. S2 S1 price 5 $ 4 3 D 0 75 100 quantity What is the total tax yield to the government? A $75 B $150 C $200 D $375

1 marks

Answer: B

This question in 0455/11 Oct/Nov 2010

8 What is an example of market failure? A a growth of competition B an existence of scarcity C a spread of pollution D a surplus of production in the short-term

1 marks

Answer: C

This question in 0455/11 May/June 2011

9 Which action by the operators of an airport directly reduces external costs? A the stopping of night flights B the building of a new runway C the payment of a productivity bonus D the reduction of charges for landing aircraft

1 marks

Answer: A

This question in 0455/11 May/June 2011

7 What is an example of market failure? A a growth of competition B an existence of scarcity C a spread of pollution D a surplus of production in the short-term

1 marks

Answer: C

This question in 0455/12 May/June 2011

8 Which action by the operators of an airport directly reduces external costs? A the stopping of night flights B the building of a new runway C the payment of a productivity bonus D the reduction of charges for landing aircraft

1 marks

Answer: A

This question in 0455/12 May/June 2011

7 What is an example of market failure? A a growth of competition B an existence of scarcity C a spread of pollution D a surplus of production in the short-term

1 marks

Answer: C

This question in 0455/13 May/June 2011

8 Which action by the operators of an airport directly reduces external costs? A the stopping of night flights B the building of a new runway C the payment of a productivity bonus D the reduction of charges for landing aircraft

1 marks

Answer: A

This question in 0455/13 May/June 2011

9 What is an example of an external cost? A a company’s transport costs B the cost of bringing about a merger C the cost of buying components from suppliers D the cost of industrial pollution

1 marks

Answer: D

This question in 0455/11 Oct/Nov 2011

4 What is an example of an external cost? A a company’s transport costs B the cost of bringing about a merger C the cost of buying components from suppliers D the cost of industrial pollution

1 marks

Answer: D

This question in 0455/12 Oct/Nov 2011

5 What is an example of an external cost? A a company’s transport costs B the cost of bringing about a merger C the cost of buying components from suppliers D the cost of industrial pollution

1 marks

Answer: D

This question in 0455/13 Oct/Nov 2011

5 A large shop selling clothes opened in a town. Its prices were much cheaper than other shops selling similar items. As a result many more customers came to the area. They also visited restaurants near the shop. The restaurants reported a 10 % increase in sales. What economic concept does the above statement best illustrate? A external benefit B inelastic demand C market failure D perfect competition

1 marks

Answer: A

This question in 0455/11 May/June 2012

8 In 2010, a major oil leak from an oil rig affected many people living around the Gulf of Mexico. What type of market failure did they experience? A monopoly exploitation B negative externality C price discrimination D rising tax burden

1 marks

Answer: B

This question in 0455/11 May/June 2012

21 Why are schools sometimes built and run with government money? A The private sector could not afford the cost of investment to build schools. B The private sector would have lower standards than government schools. C The provision of schools by the government ensures the widest choice for students. D There are external benefits from the provision of education.

1 marks

Answer: D

This question in 0455/11 May/June 2012

5 Journeys in city centres may be made by bus or by car. What is an external cost of this? A bus fares B car fumes and noise C licence fees for cars D purchase of buses

1 marks

Answer: B

This question in 0455/12 May/June 2012

8 What is an example of market failure? A a monopoly making abnormal profit B prices charged to cover social cost C the closure of small, independent shops in a rural area D the inability of a car producer to achieve economies of scale

1 marks

Answer: A

This question in 0455/12 May/June 2012

5 Journeys in city centres may be made by bus or by car. What is an external cost of this? A bus fares B car fumes and noise C licence fees for cars D purchase of buses

1 marks

Answer: B

This question in 0455/13 May/June 2012

8 What is an example of market failure? A a monopoly making abnormal profit B prices charged to cover social cost C the closure of small, independent shops in a rural area D the inability of a car producer to achieve economies of scale

1 marks

Answer: A

This question in 0455/13 May/June 2012

15 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? A the costs borne by the fishing community B the costs of closing the well C the costs to the company of drilling the well in deep water D the loss of revenue when the oil company stopped drilling

1 marks

Answer: A

This question in 0455/11 Oct/Nov 2012

18 Which is a type of market failure? A a general increase in the price of hotel rooms in busy summer seasons B an increase in house prices caused by easier borrowing for house buyers C an increase in travel time caused by a road accident D an increase in unsold goods because of a change in tastes

1 marks

Answer: C

This question in 0455/11 Oct/Nov 2012

5 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? A the costs borne by the fishing community B the costs of closing the well C the costs to the company of drilling the well in deep water D the loss of revenue when the oil company stopped drilling

1 marks

Answer: A

This question in 0455/12 Oct/Nov 2012

8 Which is a type of market failure? A a general increase in the price of hotel rooms in busy summer seasons B an increase in house prices caused by easier borrowing for house buyers C an increase in travel time caused by a road accident D an increase in unsold goods because of a change in tastes

1 marks

Answer: C

This question in 0455/12 Oct/Nov 2012

5 What necessarily happens when an external benefit exists? A Social benefit is greater than private benefit. B Social benefit is greater than social cost. C Social cost is equal to private cost. D Social cost is greater than private cost.

1 marks

Answer: A

This question in 0455/13 Oct/Nov 2012

8 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? A inequality of income B lack of information C negative externality D price discrimination

1 marks

Answer: C

This question in 0455/13 Oct/Nov 2012

8 What is a likely reason why many countries’ governments subsidise scientific research? A Private sector firms may overestimate the external benefits and ignore the private benefits of scientific research. B Private sector firms may overestimate the external costs and ignore the private costs of scientific research. C Private sector firms may underestimate the private benefits and ignore the external benefits of scientific research. D Private sector firms may underestimate the private costs and ignore the external costs of scientific research.

1 marks

Answer: C

This question in 0455/11 May/June 2013

8 A government makes public transport free to try to reduce car use in a city. What might explain why people continue to use their own cars? A Cars are less crowded than public transport. B Car use does not cause external costs. C Public transport has a better safety record than cars. D Public transport networks require high capital costs.

1 marks

Answer: A

This question in 0455/12 May/June 2013

9 The graph shows the impact of a tax on the supply of petrol (gas). D S2 S1 price O quantity What can be concluded from this graph? A the government will receive no tax revenue B the impact of the tax will be shared between the consumer and the producer C the impact of the tax will fall entirely upon the consumer D the impact of the tax will fall entirely on the producer

1 marks

Answer: C

This question in 0455/13 May/June 2013

17 What is a likely reason why many countries’ governments subsidise scientific research? A Private sector firms may overestimate the external benefits and ignore the private benefits of scientific research. B Private sector firms may overestimate the external costs and ignore the private costs of scientific research. C Private sector firms may underestimate the private benefits and ignore the external benefits of scientific research. D Private sector firms may underestimate the private costs and ignore the external costs of scientific research.

1 marks

Answer: C

This question in 0455/13 May/June 2013

17 Developers want to increase the size of a major retail shopping area in a city. It is thought that the proposal would create hundreds of jobs, be profitable for the shops but cause major traffic congestion. What economic concepts are involved in this statement? A external cost and private benefit B income distribution and inelastic demand C private investment and a decrease in supply D social benefit and perfect competition

1 marks

Answer: A

This question in 0455/11 Oct/Nov 2013

8 Developers want to increase the size of a major retail shopping area in a city. It is thought that the proposal would create hundreds of jobs, be profitable for the shops but cause major traffic congestion. What economic concepts are involved in this statement? A external cost and private benefit B income distribution and inelastic demand C private investment and a decrease in supply D social benefit and perfect competition

1 marks

Answer: A

This question in 0455/12 Oct/Nov 2013

8 What is an example of market failure? A a firm forced to close because of fierce competition B a firm polluting rivers with waste chemicals C a high price for an essential product D a shortage of an agricultural crop

1 marks

Answer: B

This question in 0455/13 Oct/Nov 2013

6 An area attracts tourists to see rare animals but the tourists have few hotels in which to stay. The local government has given permission for a developer to build a hotel. Conservationists say that the area will be ruined as the animals will move away and the nature of the area will be changed. What is likely to happen as a result of this decision to the private benefit of the tourists and the external cost? private benefit external cost A increase increase B decrease decrease C uncertain increase D uncertain decrease

1 marks

Answer: C

This question in 0455/11 May/June 2014

17 The Mexican government has passed a law which prevents any monopoly charging a price significantly above its production costs. Any monopoly that breaks the law is fined. Which type of policy measure is this? A minimum price B regulation C subsidy D tax

1 marks

Answer: B

This question in 0455/11 May/June 2014

5 Which headline could apply to a mixed economy but not a free market economy? A ‘Cheap imports put domestic producers out of business.’ B ‘Local government planning decision angers residents.’ C ‘Many fish die as a company pollutes a river with waste material.’ D ‘Small shops close as large supermarkets open in the area.’

1 marks

Answer: B

This question in 0455/12 May/June 2014

6 An area attracts tourists to see rare animals but the tourists have few hotels in which to stay. The local government has given permission for a developer to build a hotel. Conservationists say that the area will be ruined as the animals will move away and the nature of the area will be changed. What is likely to happen as a result of this decision to the private benefit of the tourists and the external cost? private benefit external cost A increase increase B decrease decrease C uncertain increase D uncertain decrease

1 marks

Answer: C

This question in 0455/13 May/June 2014

7 The following is a headline from the newspaper. Car drivers to pay higher taxes What will result from an increased tax on cars? A increased employment in the car industry B increased petrol (gas) sales C reduced external costs of car use D reduced number of bus journeys

1 marks

Answer: C

This question in 0455/11 Oct/Nov 2014

6 The following is a headline from the newspaper. Car drivers to pay higher taxes What will result from an increased tax on cars? A increased employment in the car industry B increased petrol (gas) sales C reduced external costs of car use D reduced number of bus journeys

1 marks

Answer: C

This question in 0455/12 Oct/Nov 2014

6 A bridge is built over a river which enables journey times to be reduced. The table shows costs and benefits from building the bridge. $000 private benefit 12 private cost 10 external benefit 8 external cost 5 Which calculation represents social benefit? A $12 000 – $10 000 = $2000 B $8000 – $5000 = $3000 C $12 000 + $5000 = $17 000 D $8000 + $12 000 = $20 000

1 marks

Answer: D

This question in 0455/13 Oct/Nov 2014

2 To help reduce the price of oil, new supplies are needed. However, in 2013, objectors opposed attempts to explore new sites because of the environmental damage the exploration might cause. How does this illustrate the basic economic problem? A Oil is a limited resource. B Oil is expensive. C The exploration involves demand and supply. D There are external costs involved in production.

1 marks

Answer: A

This question in 0455/11 May/June 2015

8 A large supermarket applied to build on land which was in an area of natural beauty. The local government allowed the building, even though the natural beauty of the area would be lost, because many jobs would be created and much needed income would be brought to the local community. Which economic ideas cannot be found in the above statement? A external cost and private enterprise B free market and the conservation of resources C opportunity cost and improved standards of living D public sector and external benefit

1 marks

Answer: B

This question in 0455/11 May/June 2015

5 What would not be an example of the working of a market system? A a high price charged because of costly research to produce the good B a high price charged for a well-known painting C a low price charged because of economies of scale D a low price charged for subsidised bus travel

1 marks

Answer: D

This question in 0455/12 May/June 2015

8 A large supermarket applied to build on land which was in an area of natural beauty. The local government allowed the building, even though the natural beauty of the area would be lost, because many jobs would be created and much needed income would be brought to the local community. Which economic ideas cannot be found in the above statement? A external cost and private enterprise B free market and the conservation of resources C opportunity cost and improved standards of living D public sector and external benefit

1 marks

Answer: B

This question in 0455/12 May/June 2015

3 Water is a scarce resource in Singapore because the island’s small geographical area means there is little land on which to collect water for its 4.8 million people. Which method would be least successful in tackling its water scarcity? A exempting large families from paying water taxes B importing water from neighbouring countries C introducing a water tax that rises as consumption rises D redirecting funds from education to schemes to purify rainwater

1 marks

Answer: A

This question in 0455/13 May/June 2015

8 A large supermarket applied to build on land which was in an area of natural beauty. The local government allowed the building, even though the natural beauty of the area would be lost, because many jobs would be created and much needed income would be brought to the local community. Which economic ideas cannot be found in the above statement? A external cost and private enterprise B free market and the conservation of resources C opportunity cost and improved standards of living D public sector and external benefit

1 marks

Answer: B

This question in 0455/13 May/June 2015

19 The table shows the harmful carbon dioxide emissions for a country in selected years in millions of tonnes. 2000 2010 manufacturing 204 88 transport 72 135 total including all other sources 685 543 What would be likely to have the greatest effect on reducing carbon dioxide emissions? A introducing incentives to encourage manufacturers to reduce their emissions B providing grants to fit solar panels to manufacturing premises C raising taxes on petroleum and diesel fuel D subsidising car manufacturers

1 marks

Answer: C

This question in 0455/13 May/June 2015

8 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? A ignoring external cost B inequality of income C lack of information D price discrimination

1 marks

Answer: A

This question in 0455/11 Oct/Nov 2015

18 The diagram shows the imposition of a tax of UZ on a good. St S T U price W V E Y Z D O Qt Q quantity Which area shows the government’s tax revenue? A TUEV B TUEZY C TUWV D TUZY

1 marks

Answer: D

This question in 0455/11 Oct/Nov 2015

8 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? A ignoring external cost B inequality of income C lack of information D price discrimination

1 marks

Answer: A

This question in 0455/12 Oct/Nov 2015

14 A company supplying water spent $470 million creating a network of pipes to distribute water more efficiently. It employed local workers and boosted the local economy. It also provided better facilities for the tourist industry. What cannot be concluded from the above? A The company increased its profits. B There was a decrease in regional unemployment. C There were fixed costs of $470 million. D There were positive externalities.

1 marks

Answer: A

This question in 0455/12 Oct/Nov 2015

7 How are social costs calculated? A fixed costs plus variable costs B private benefits less private costs C private costs plus external costs D social benefits less external costs

1 marks

Answer: C

This question in 0455/12 Feb/March 2016

6 Developers want to increase the size of a major retail shopping area in a city. It is thought that the proposal would create hundreds of jobs, be profitable for the shops but cause major traffic congestion. What economic concepts are directly involved in this statement? A external cost and private benefit B income distribution and inelastic demand C private investment and a decrease in supply D social benefit and perfect competition

1 marks

Answer: A

This question in 0455/11 May/June 2016

6 Developers want to increase the size of a major retail shopping area in a city. It is thought that the proposal would create hundreds of jobs, be profitable for the shops but cause major traffic congestion. What economic concepts are directly involved in this statement? A external cost and private benefit B income distribution and inelastic demand C private investment and a decrease in supply D social benefit and perfect competition

1 marks

Answer: A

This question in 0455/12 May/June 2016

6 Developers want to increase the size of a major retail shopping area in a city. It is thought that the proposal would create hundreds of jobs, be profitable for the shops but cause major traffic congestion. What economic concepts are directly involved in this statement? A external cost and private benefit B income distribution and inelastic demand C private investment and a decrease in supply D social benefit and perfect competition

1 marks

Answer: A

This question in 0455/13 May/June 2016

23 Which type of government policy would be most suitable to control external costs of production? A employment policy B fiscal policy C monetary policy D trade policy

1 marks

Answer: B

This question in 0455/13 May/June 2016

7 What indicates the existence of external costs in an economy? A An international trade deficit has caused the country to be in debt. B National companies have borrowed from foreign investors. C Private costs of production are less than social costs. D Private costs of production are more than social benefits.

1 marks

This question in 0455/12 Oct/Nov 2016

16 A government decides to sell the monopoly supply of gas to households to a private firm. How could the government protect the interests of households after selling a large company to the private sector? A by excluding all competition from foreign companies B by imposing a tax on excess profits C by introducing a quota system for imports of gas D by removing price controls on gas

1 marks

This question in 0455/12 Oct/Nov 2016

7 The use of cars in many cities creates negative externalities. The diagram shows the free market equilibrium X1 and the socially efficient market equilibrium X2. S2 S1 P2 X2 costs / benefits P1 X1 D O quantity Using the diagram, which statement is correct? A Socially efficient supply is S and the market price P is too high. B Socially efficient supply is S and the market price P is too low. C Socially efficient supply is S1 and the market price P is too high. D Socially efficient supply is S1 and the market price P is too low.

1 marks

Answer: D

This question in 0455/13 Oct/Nov 2016

16 A government decides to sell the monopoly supply of gas to households to a private firm. How could the government protect the interests of households after selling a large company to the private sector? A by excluding all competition from foreign companies B by imposing a tax on excess profits C by introducing a quota system for imports of gas D by removing price controls on gas

1 marks

Answer: B

This question in 0455/13 Oct/Nov 2016

4 What is an example of market failure? A a growth of competition B a spread of pollution C a surplus of production in the short term D an existence of scarcity

1 marks

Answer: B

This question in 0455/12 Feb/March 2017

7 A project to build one of the world’s biggest coal mines was planned in Australia. The project was estimated to cost $US12.5 million. It would create employment but threaten endangered species as large coal ships would damage the Great Barrier Reef. What effects would this project have on the following costs and benefits? private cost private benefit external cost A decrease uncertain uncertain B increase decrease increase C increase increase increase D uncertain increase increase

1 marks

Answer: C

This question in 0455/11 May/June 2017

6 A bee-keeper maintains hives of bees to produce honey. The bees can pollinate neighbours’ fruit trees but also give a painful sting to gardeners. If both of these events occur, how will costs and benefits be affected? A External benefits will fall and social costs will fall. B External costs will rise and social benefits will fall. C Social costs and social benefits will fall. D Social costs and social benefits will rise.

1 marks

Answer: D

This question in 0455/12 May/June 2017

4 A government needs to decide how much to fine firms for causing the external costs of air pollution in industrial areas. Which external cost would be the most difficult to measure in monetary terms? A the discomfort associated with breathing B the expenditure on additional healthcare C the loss of earnings due to illness D the medical research into respiratory disease

1 marks

Answer: A

This question in 0455/11 Oct/Nov 2017

5 What is an example of market failure? A city centre congestion B low economic growth C rising prices D trade deficits

1 marks

Answer: A

This question in 0455/11 Oct/Nov 2017

2 A government allowed a building company to construct new houses which destroyed an area designated as an area of natural beauty. Which concepts can be applied to this statement? A budget surplus; public sector B external cost; opportunity cost C government subsidy; mixed economy D private enterprise; budget deficit

1 marks

Answer: B

This question in 0455/12 Oct/Nov 2017

5 Which of the effects of economic development is an external cost? A higher employment B higher fixed costs C increased production D increased traffic congestion

1 marks

Answer: D

This question in 0455/12 Oct/Nov 2017

4 What might be an external cost of drinking alcohol? A the cost of a bottle of wine B the risk of illness from drinking alcohol C the risk of street violence D the tax paid to the government

1 marks

Answer: C

This question in 0455/13 Oct/Nov 2017

6 A government approved the construction of a new railway line connecting major cities. It would be built by a private company but be funded partly through taxation. It would create many jobs. People living on the route worried about the harm to their environment. Which concepts are directly involved in this statement? A excess demand and public corporation B government subsidies and perfect competition C market system and income distribution D private benefit and external cost

1 marks

Answer: D

This question in 0455/11 May/June 2018

19 Which situation involving the building industry is most likely to be investigated by a government body set up to control restrictive practices? A a builder purchasing a plot of land for development of housing B groups of suppliers of building materials agreeing to fix prices C several builders bidding for the same contracts D several builders using different sources of supply

1 marks

Answer: B

This question in 0455/11 May/June 2018

6 The table shows government estimates of the private and external benefits and costs of building a new dam. $ million private benefits 250 external benefits 325 private costs 200 external costs 150 What is the difference between the social benefits and social costs of building the dam? A $25 million B $50 million C $175 million D $225 million

1 marks

Answer: D

This question in 0455/12 May/June 2018

19 Which situation involving the building industry is most likely to be investigated by a government body set up to control restrictive practices? A a builder purchasing a plot of land for development of housing B groups of suppliers of building materials agreeing to fix prices C several builders bidding for the same contracts D several builders using different sources of supply

1 marks

Answer: B

This question in 0455/12 May/June 2018

6 A private firm is one of a few suppliers of electricity in an economy. It is fined by the government for pollution from its coal-fired power stations which affect the health of those living nearby. What does this situation involve? A a government policy of nationalising an electricity supplier B a market structure for electricity that is perfect competition C a monopoly electricity supplier that ignores government controls D external costs that are the result of electricity production

1 marks

Answer: D

This question in 0455/13 May/June 2018

19 Which situation involving the building industry is most likely to be investigated by a government body set up to control restrictive practices? A a builder purchasing a plot of land for development of housing B groups of suppliers of building materials agreeing to fix prices C several builders bidding for the same contracts D several builders using different sources of supply

1 marks

Answer: B

This question in 0455/13 May/June 2018

4 An economy operates entirely as a market system. Which type of service would not be provided in such an economy? A commercial banking services B free government health services C private educational services D profitable retail services

1 marks

Answer: B

This question in 0455/11 Oct/Nov 2018

6 A major highway has been built at a cost of US$175 million between Nairobi, Kenya and its suburbs. This reduces travel time and increases safety, but there are environmental problems for small enterprises along its route. Who bears the external costs of this project? A the authorities who paid for the highway B the commuters who travel to work in Nairobi C the construction companies that built the highway D the small enterprises along the route

1 marks

Answer: D

This question in 0455/11 Oct/Nov 2018

6 Coal production in the UK has declined in recent years. One reason given for this is that the social cost of coal production is too high. What best describes the social cost of coal production? A all the benefits of coal production minus all the costs of coal production B the cost of the environmental damage caused by coal production C the cost to the government of subsidising the coal industry D the private costs of coal production plus the external costs of coal production

1 marks

Answer: D

This question in 0455/12 Oct/Nov 2018

4 What can be found in a market economy? A externalities and monopolies B interest rates and public goods C public corporations and market prices D tax rates and commercial banks

1 marks

Answer: A

This question in 0455/12 Feb/March 2019

5 A private sector firm is given a contract by the government to supply a country’s water. Which government directive will minimise the risk of market failure? A allow the firm to ration water rather than meet demand B ensure the firm’s supply includes all areas which are expensive to service C insist that the firm aims to maximise profits D instruct the firm to provide water only to those who can pay for it

1 marks

Answer: B

This question in 0455/12 Feb/March 2019

5 What causes market failure? A government provision of services B social costs equal private costs C the existence of external benefits D the existence of perfect competition

1 marks

Answer: C

This question in 0455/11 May/June 2019

5 An airline upgrades its services by providing bigger aircraft. The airline claims it will reduce catering waste and lower carbon (CO2) emissions per passenger journey although fares may rise. What is a private cost and an external benefit of this decision? private cost external benefit A bigger aircraft higher fares B higher fares lower CO2 C less catering waste bigger aircraft D lower CO2 less catering waste

1 marks

Answer: B

This question in 0455/12 May/June 2019

18 The diagram shows the effect of the imposition of a tax on a product. S2 price S1 U V W X Y Z D1 O Q2 Q1 quantity Which area represents the part of the tax paid by consumers of the product? A U + V B U + V + W C U + V + X + Y D U + X

1 marks

Answer: A

This question in 0455/12 May/June 2019

5 China has built a new railway in Kenya from the capital, Nairobi, to the seaport of Mombasa. Kenya must repay the cost of the railway to China. Journey time has been reduced significantly but fares have increased and farmers have lost agricultural land along the new line. Who bears the external costs of this operation? A China who built the new railway B farmers who have lost agricultural land C Kenya who must repay the cost to China D passengers who pay the higher fare

1 marks

Answer: B

This question in 0455/13 May/June 2019

18 Sometimes the government regulates the market to protect the interests of consumers. Which kind of regulation would achieve this protection? A discouraging economies of scale that lead to lower costs B preventing mergers which result in high monopoly prices C reducing shop opening hours D reducing the range of products supplied to the market

1 marks

Answer: B

This question in 0455/13 May/June 2019

5 In a city, what is most unlikely to be provided by the private market system? A a museum B a school C a sports field D street lights

1 marks

Answer: D

This question in 0455/11 Oct/Nov 2019

19 The diagram shows the impact of a government imposing an indirect tax on a good. The original demand curve is D1 and original supply curve is S1. price S2 $ S1 60 50 40 D1 0 80 100 quantity What is the total tax revenue gained by the government? A $1600 B $3200 C $4800 D $5000

1 marks

Answer: A

This question in 0455/11 Oct/Nov 2019

5 What suggests that there is market failure? A high producer profits B high retail prices C lack of competition D low levels of investment

1 marks

Answer: C

This question in 0455/12 Oct/Nov 2019

5 In a private market system certain goods and services would not be available unless the government intervened. What does this identify in a private market? A market distribution B market equilibrium C market failure D market structure

1 marks

Answer: C

This question in 0455/13 Oct/Nov 2019

14 In some industries, a monopoly controls output and prices. What is the most likely impact of this on consumers? A higher prices B higher profits C higher taxes D more choice

1 marks

This question in 0455/12 Feb/March 2020

5 What aspect of demerit goods means they are overproduced? A clear product information B high external costs C high product taxes D low customer demand

1 marks

Answer: B

This question in 0455/11 May/June 2020

15 How is a government most likely to prevent the growth of monopolies? A by encouraging mergers in the private sector B by establishing nationalised industries C by promoting the benefits of economies of scale D by reducing barriers to entry into an industry

1 marks

Answer: D

This question in 0455/11 May/June 2020

5 What is a cause of market failure? A many firms B monopoly C profit maximisation D specialisation

1 marks

Answer: B

This question in 0455/12 May/June 2020

19 Why are governments responsible for the defence of the country? A It is impossible to charge a price for defence. B It prevents individual citizens having access to weapons. C Only governments can manufacture weapons. D Providing defence is very expensive.

1 marks

Answer: A

This question in 0455/12 May/June 2020

5 Why might a market economy fail to achieve the best use of scarce resources? A Consumers may lack information about which good to buy. B Demerit goods are underconsumed. C Public goods are overconsumed. D Most resources are owned by the government.

1 marks

Answer: A

This question in 0455/12 Oct/Nov 2020

19 The government wants to reduce the consumption of cigarettes. Which policy would be most likely to do this? A increasing a subsidy on cigarettes B increasing income tax C increasing interest rates D increasing the indirect tax on cigarettes

1 marks

Answer: D

This question in 0455/12 Oct/Nov 2020

5 What is a disadvantage of a market economic system? A Entrepreneurs lack incentives to produce what consumers want. B Government intervention will reduce the efficiency of firms. C Market dominance by firms can lead to higher prices. D There is underproduction of demerit goods.

1 marks

Answer: C

This question in 0455/13 Oct/Nov 2020

6 Which characteristics of a product will cause market failure? A Information about the product is known equally by consumers and producers. B The consumption of the product has no external benefits. C The product is non-rival and non-excludable. D The production of the product has no external costs.

1 marks

Answer: C

This question in 0455/12 Feb/March 2021

18 The diagram shows selected areas of government spending for a country. national $32.2 $32.2 bn $32.2 bn bn defence education $36.4 bn $36.4 $36.4 bn bn health $81.8 bn $81.8 $81.8 bn bn unemployment $180.1 $180.1 bn $180.1 bn bn benefits 0 20 40 60 80 100 120 140 160 180 200 What was the total government spending on merit goods? A $32.2 billion B $81.8 billion C $118.2 billion D $261.9 billion

1 marks

Answer: C

This question in 0455/12 Feb/March 2021

6 What is an example of an external benefit from an individual cycling, rather than driving, to work? A higher cost of building cycle lanes B improved physical fitness to the individual from cycling C lower cost of cycling compared with driving to work D reduced congestion for other road users

1 marks

Answer: D

This question in 0455/11 May/June 2021

6 Which problem will be reduced by a government subsidy to a firm? A absence of a public good B abuse of monopoly power C overconsumption of a demerit good D underconsumption of a merit good

1 marks

Answer: D

This question in 0455/12 May/June 2021

6 What is a definition of market failure? A market forces of demand and supply do not allocate resources efficiently B not all consumers can afford to buy the goods they would like C private benefits of consumption are greater than external benefits D public goods are only provided by a government

1 marks

Answer: A

This question in 0455/13 May/June 2021

1 To help reduce the price of oil, new supplies are needed. However, objectors oppose exploration of new sites because of the environmental damage it may cause. Why is this statement an example of the basic economic problem? A Oil is a limited resource. B Oil is expensive. C The exploration involves demand and supply. D There are external costs involved in production.

1 marks

Answer: A

This question in 0455/11 Oct/Nov 2021

4 When is production certain to harm society? A when the private costs are greater than the private benefits B when the production results in externalities C when the social costs are greater than the private costs D when the social costs are greater than the social benefits

1 marks

Answer: D

This question in 0455/11 Oct/Nov 2021

3 Helium is a gas that is limited in supply because it takes thousands of years to form. The US government holds 35% of the world’s supply of helium and has been selling its stocks. Helium is essential in medical scanners. It is also used for party balloons, which is a wasteful alternative use of a valuable good. Which two concepts apply to this statement? A demand and supply, government subsidy B excess demand, resource allocation C opportunity cost, private monopoly D public sector, factors of production

1 marks

Answer: D

This question in 0455/12 Oct/Nov 2021

4 Which combination of characteristics describes a public good? A excludable and non-rival in consumption B excludable and rival in consumption C non-excludable and non-rival in consumption D non-excludable and rival in consumption

1 marks

Answer: C

This question in 0455/12 Oct/Nov 2021

4 What is an example of a public good? A healthcare B street lights C unemployment benefits D vaccinations

1 marks

Answer: B

This question in 0455/13 Oct/Nov 2021

5 Why does a government provide certain goods and services in a mixed economic system? A The government always provides goods more cheaply than private firms. B The government considers only private costs and benefits. C The government provides goods to prevent the development of monopolies. D The government provides public goods because private firms cannot charge for them.

1 marks

Answer: D

This question in 0455/13 Oct/Nov 2021

16 What is an advantage of a country having a market economic system with a large private sector? A Firms can become unprofitable if they do not produce what consumers want. B Market forces often fail to ensure maximum benefits for society. C Some goods may not be provided at all or not in sufficient quantity. D There is an unequal distribution of income which can increase over time.

1 marks

Answer: A

This question in 0455/11 May/June 2022

5 In recent years, a government has started to make more use of the free market system. However, they are doing it very slowly to avoid the disadvantages that a free market system might bring. What is a possible disadvantage of the free market system? A decreased incentive to work B decreased levels of pollution C increased efficiency D increased inequality of income

1 marks

Answer: D

This question in 0455/12 May/June 2022

17 A government levies a specific tax on the supply of cigarettes. At the same time it starts a campaign to explain the health risks of smoking cigarettes. Which diagram illustrates the effects on the demand and supply of cigarettes? A B price price S1 S2 S2 S1 D D O quantity O quantity C D price price S2 S1 S1 S2 D2 D1 D1 D2 O quantity O quantity

1 marks

Answer: C

This question in 0455/12 May/June 2022

8 In a free market, market failure causes a misallocation of resources. What is not an example of market failure? A external costs of production B internal diseconomies of scale C over-consumption of demerit goods D under-consumption of merit goods

1 marks

Answer: B

This question in 0455/11 Oct/Nov 2022

15 Two large-scale firms involved in chemical manufacturing wish to merge. Why might the government decide to prevent the merger? A It enables greater economies of scale to operate. B It increases productivity per worker employed. C It reduces competition in the industry. D It results in higher wages paid to labour.

1 marks

Answer: C

This question in 0455/11 Oct/Nov 2022

23 Which type of goods have to be financed by a government? A capital goods B demerit goods C free goods D public goods

1 marks

Answer: D

This question in 0455/11 Oct/Nov 2022

4 What is a disadvantage of a market economy? A Consumer choice is ignored. B Consumers may lack information. C Government subsidies encourage efficiency. D There is no incentive to work.

1 marks

Answer: B

This question in 0455/12 Oct/Nov 2022

8 To reduce traffic congestion, a government decides to build a new road. There is a toll charge on the new road. What is the main purpose of this government intervention? A to address the problem of market failure B to discourage people from using public transport C to ensure the supply of transport through the free market D to obtain revenue from the levy of a toll

1 marks

Answer: A

This question in 0455/12 Oct/Nov 2022

8 What is a possible consequence of market failure? A Consumers have complete information about goods. B Disequilibrium continues in the market. C Merit goods are under-supplied. D Some goods are no longer demanded.

1 marks

Answer: C

This question in 0455/13 Oct/Nov 2022

23 Why does a government provide public goods? A Public goods are always used by everyone. B Public goods are not profitable for private firms. C Public goods can only be provided by monopolies. D Public goods create large external costs.

1 marks

Answer: B

This question in 0455/13 Oct/Nov 2022

9 The diagram shows the demand for and the supply of bread. price S P1 D O quantity A maximum price P1 is fixed by the government. What is likely to be the immediate result of this? A a movement of the demand curve to the right B a movement of the supply curve to the right C a shortage of bread D a surplus of bread

1 marks

Answer: C

This question in 0455/12 Feb/March 2023

8 For some illnesses, wearing a face mask has a benefit as it could prevent people from getting infected. Not all people are willing to wear face masks. Based on the statement above, why would there be an inefficient allocation of face masks in the free market? A Consumers in the free market only consider private costs and benefits. B Face masks are non-rival and non-excludable. C There is abuse of monopoly power by the producer of face masks. D There is perfect information in the free market.

1 marks

Answer: A

This question in 0455/11 May/June 2023

10 A government decides to reduce air pollution in city centres by giving financial assistance to bus companies, reducing their costs of production and prices for passengers. Which type of policy measure is this? A a maximum price B a minimum price C a subsidy D regulation

1 marks

Answer: C

This question in 0455/11 May/June 2023

8 What might be an external benefit of an increase in the number of university graduates in an economy? A an increase in revenue for the universities from fee-paying students B an increase in tax revenue from a more productive labour force C an increase in graduate employment as a percentage of the working population D an increase in wages for graduates

1 marks

Answer: B

This question in 0455/12 May/June 2023

10 Imposing a maximum price for a good is an example of which type of government policy? A fiscal B monetary C regulation D supply-side

1 marks

Answer: C

This question in 0455/12 May/June 2023

18 What is the most likely reason to increase government subsidies? A to decrease consumption of a merit good B to increase consumption of a merit good C to decrease consumption of a demerit good D to increase consumption of a demerit good

1 marks

Answer: B

This question in 0455/12 May/June 2023

8 The diagram shows the market for petrol (gasoline). SP is the supply of petrol based on the private cost of petrol production and SS is the supply of petrol based on the social cost of production. SS SP price of petrol P2 P1 D O Q3 Q2 Q1 quantity of petrol Which distance shows the market failure caused by the production of petrol? A OQ1 B OQ2 C Q2Q1 D Q3Q1

1 marks

Answer: C

This question in 0455/13 May/June 2023

10 A government believes that people eat too much sugar but not enough fruit. Which combination of policies would the government introduce? sugar fruit A increase its tax increase its tax B increase its tax subsidise its production C subsidise its production increase its tax D subsidise its production subsidise its production

1 marks

Answer: B

This question in 0455/13 May/June 2023

8 What is a disadvantage of a market economy? A not enough competition B not enough merit goods C no consumer choice D state intervention

1 marks

Answer: B

This question in 0455/11 Oct/Nov 2023

8 What is an external cost of smoking cigarettes? A the cost of the cigarette packaging B the cost to non-smokers’ health C the cost to smokers D the tax on cigarettes

1 marks

Answer: B

This question in 0455/12 Feb/March 2024

21 In a mixed economy, a government provides some goods that markets cannot. What is the name of these goods? A free goods B economic goods C merit goods D public goods

1 marks

Answer: D

This question in 0455/12 Feb/March 2024

19 The diagram shows the impact of a tax introduced on a product. S2 price S1 E P2 P1 F H G D O Q2 Q1 quantity Which area represents the amount of tax paid by the consumer? A HP1FG B HP2EG C OP2EQ2 D P1P2EF

1 marks

Answer: D

This question in 0455/12 May/June 2024

9 The government wishes to reduce the harmful emissions from road transport. Which measure would be effective in helping to achieve this aim? A increased expenditure on oil exploration B introducing a subsidy on public transport C reduced taxation on the production of private vehicles D reducing incentives to purchase electric vehicles

1 marks

Answer: B

This question in 0455/13 May/June 2024

18 The diagram shows selected areas of government spending for a country. national $32.2bn $32.2 bn defence education $36.4bn $36.4 bn health $81.8bn $81.8 bn unemployment $180.1bn $180.1 bn benefits 0 20 40 60 80 100 120 140 160 180 200 What was the total government spending on merit goods? A $32.2 billion B $81.8 billion C $118.2 billion D $261.9 billion

1 marks

Answer: C

This question in 0455/13 May/June 2024

8 Why does a government provide certain goods and services in a mixed economic system? A The government always provides goods more cheaply than private firms. B The government considers only private costs and private benefits. C The government provides goods to prevent the development of monopolies. D The government provides public goods because private firms cannot charge for them.

1 marks

Answer: D

This question in 0455/11 Oct/Nov 2024

9 A government intends to subsidise bus fares and increase taxes on private motoring. How would this affect the private cost of transport? for bus for motorists passengers A decrease decrease B decrease increase C increase decrease D increase increase

1 marks

Answer: C

This question in 0455/11 Oct/Nov 2024

9 A government intends to build a new international airport in an area of outstanding natural beauty. What would be an external cost of this decision? A the cost of importing construction materials B the enjoyment lost by those unable to use the countryside C the increase in profits for local businesses D the wages paid to the construction workers

1 marks

Answer: B

This question in 0455/12 Oct/Nov 2024

9 What is external benefit? A private benefits minus private costs B private benefits plus social benefits C social benefits minus private benefits D social benefits plus social costs

1 marks

Answer: C

This question in 0455/13 Oct/Nov 2024

9 A government intends to build a new road through a forest. What will be an external cost of this? A the cost of building the road B the loss suffered by those who would have used the forest C the cost of maintaining the road D the new jobs created from the construction of the road

1 marks

Answer: B

This question in 0455/12 Feb/March 2025

9 What is a characteristic of a demerit good? A it is more beneficial to the consumer than they realise B it is overconsumed in the free market C it is underproduced in the free market D it provides external benefits

1 marks

Answer: B

This question in 0455/12 May/June 2025

20 What is most likely to be a reason for taxing oil? A to conserve oil resources B to create employment C to encourage economic growth D to reduce oil prices

1 marks

Answer: A

This question in 0455/13 May/June 2025

9 A bridge is built over a river which enables journey times to be reduced. The table shows costs and benefits of building the bridge. $000 private benefit 12 private cost 10 external benefit 8 external cost 5 Which calculation represents social benefit? A $12000 – $10000 = $2000 B $8000 – $5000 = $3000 C $12000 + $5000 = $17000 D $8000 + $12000 = $20000

1 marks

Answer: D

This question in 0455/12 Oct/Nov 2025

9 The diagram shows the equilibrium price for bread. S price ($) 5 D 0 quantity What will be the short-term effect if the government sets a maximum price below $5? A a shift in the demand curve B a shift in the supply curve C an excess of demand over supply D an excess of supply over demand

1 marks

Answer: C

This question in 0455/13 Oct/Nov 2025