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Week 3 Exercise

The document contains a series of economics exercises focused on external costs, social costs and benefits, government intervention, and public goods. It includes multiple-choice questions, open-answer questions, and analysis prompts related to real-world scenarios like street lighting, speeding fines, and firework displays. The exercises aim to assess understanding of economic concepts and their implications on society.

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Yanxiao Cao
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2 views4 pages

Week 3 Exercise

The document contains a series of economics exercises focused on external costs, social costs and benefits, government intervention, and public goods. It includes multiple-choice questions, open-answer questions, and analysis prompts related to real-world scenarios like street lighting, speeding fines, and firework displays. The exercises aim to assess understanding of economic concepts and their implications on society.

Uploaded by

Yanxiao Cao
Copyright
© All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd

Week 3 Exercise

IG Economics

Part A Multiple-choice Questions and Basic Knowledge

1. Which one of the following is an example of an external cost? (1’)


A. Healthcare
B. Litter
C. Rent
D. Weather

2. Which one of the following is likely to lead to an inefficient allocation


of resources? (1’)
A. Migration
B. Competition
C. Lack of information
D. Division of labour

3. State the formula for social costs. (1’)

4. State the formula for social benefits. (1’)

5. State one example of an external benefit. (1’)

6. State one reason why governments intervene in the economy. (1’)

7. Define the term fine. (1’)

8. What is meant by the term external costs. (2’)

Part B Open-answer Questions


9. Street lighting is considered to be a public good.

Explain one reason why this may cause a free rider problem. (3’)

10. In the UK, the speed limit for drivers in urban areas is 30 miles
per hour (48 kilometres per hour).

Explain one reason why the UK Government may use fines to


reduce the negative externalities caused by drives speeding in
urban areas. (3’)
11. 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. (6’)

12. 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.
(9’)

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