OCR GCSE Economics - 3.8 - Limitations of Markets

A _______ externality occurs when a cost of production or consumption falls on a third party:

• Negative

• Neutral

• Positive

A _______ externality occurs when a benefit of production or consumption falls on a third party:

• Negative

• Neutral

• Positive

Pollution released from a factory is an example of a ___ externality

• Negative

• Neutral

• Positive

Getting a vaccination is an example of a _____ externality

• Negative

• Neutral

• Positive

The government seeks to encourage ____ externalities

• Negative

• Neutral

• Positive

Which of the following would create a positive externality?

• Water pollution

• A neighbour’s loud music that wakes you up

• Flu vaccination

• The greenhouse effect and global warming

Government regulation may negatively affect businesses in the following ways by

• Increasing input costs

• Increasing profits

• Lowering consumer prices

• All of the above

Market failure occurs when

• The accumulation of wealth in the free market is shared between a large group of people

• A command economy increase production

• The economy has a strong GDP and low interest rates

• The distribution of goods and services in the free market is not efficient and leads to a loss of social well being

Pollution from fertilisers used in farming is an example of:

• Positive production externality

• Negative production externality

• Positive consumption externality

• Negative consumption externality

Market failure results in a mis-allocation of resources. In some cases, this can be corrected by the government

• Restricting the manufacture of goods that generate positive externalities

• Providing public goods

• Subsidising all loss-making firms

• Placing a tax on merit goods