A Level Economics AQA Practice Exam

What is an example of a negative externality?

1. Increased education funding

2. Health benefits from vaccination

3. Pollution affecting local fisheries

4. Government subsidies for renewable energy

The correct answer is: Pollution affecting local fisheries

A negative externality occurs when an economic activity causes adverse effects on third parties who are not directly involved in that activity. In this context, pollution affecting local fisheries is a prime example of a negative externality because it reflects how the actions of certain industries, such as manufacturing or transportation, can lead to environmental degradation. This pollution can harm marine life, disrupt local ecosystems, and negatively impact the livelihoods of fishers who rely on healthy fisheries for their income. In contrast, the other options presented are examples of positive or beneficial externalities. Increased education funding can lead to a more educated workforce, which benefits society as a whole, while health benefits from vaccination contribute to herd immunity, enhancing public health. Government subsidies for renewable energy encourage the production of cleaner energy sources, helping to reduce overall pollution and benefiting the environment, rather than imposing negative impacts on others. These examples illustrate how externalities can vary in nature and effects on the surrounding community and environment.