**MCQ Questions:**

1. What could a government do to reduce external costs in the economy?
A) Direct tax for higher income earners
B) Decrease direct tax for lower income earners
C) Increase indirect tax on petrol/gasoline
D) Remove indirect tax on tobacco

2. What would be an external cost of the government's decision to build a new international airport in an area of outstanding natural beauty?
A) The cost of importing construction materials
B) The countryside that is lost
C) The increase in profits for local businesses
D) The wages paid to the construction workers

3. What is most likely to be the responsibility of a central government?
A) The provision of immigration officials at an airport
B) The provision of security cameras in a shopping center
C) The provision of security staff at a bank
D) The provision of ticket inspectors on a train

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

5. 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 for aircraft

6. 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

7. What are the external costs of the incident where an international company drilled for oil in deep water and caused a major oil leakage, affecting the jobs of the fishing community?
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

8. What 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

9. Which government policy would best protect the environment?
A) Encouraging economic growth
B) Exploiting natural resources
C) Increasing tax on fuel
D) Removing controls on industry

10. What might explain why people continue to use their own cars despite the government making public transport free to reduce car use in a city?
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

11. What is an example of market failure?
A) A balance of trade deficit
B) Monopoly profits
C) Rapidly rising price levels
D) The production of non-essential goods


Here are the answers to the MCQ questions:

What could a government do to reduce external costs in the economy?
Answer: C) Increase indirect tax on petrol/gasoline

What would be an external cost of the government's decision to build a new international airport in an area of outstanding natural beauty?
Answer: B) The countryside that is lost

What is most likely to be the responsibility of a central government?
Answer: A) The provision of immigration officials at an airport

What is an example of market failure?
Answer: C) A spread of pollution

Which action by the operators of an airport directly reduces external costs?
Answer: A) The stopping of night flights

What is an example of an external cost?
Answer: D) The cost of industrial pollution

What are the external costs of the incident where an international company drilled for oil in deep water and caused a major oil leakage, affecting the jobs of the fishing community?
Answer: A) The costs borne by the fishing community

What is a type of market failure?
Answer: C) An increase in travel time caused by a road accident

Which government policy would best protect the environment?
Answer: C) Increasing tax on fuel

What might explain why people continue to use their own cars despite the government making public transport free to reduce car use in a city?
Answer: A) Cars are less crowded than public transport

What is an example of market failure?
Answer: B) Monopoly profits