Pearson Edexcel International GCSE Economics: The mixed economy and externalities (4EC1) – Practice Questions

These are original questions written for Marlbridge, for revision and practice on this content. They are not reproduced past-paper questions, and they do not replicate the exam’s exact structure, question count or mark tariffs – examination boards hold copyright in their own papers. Use these alongside the official past papers from your board or school.

These questions cover sections 1.1.5 (The mixed economy) and 1.1.6 (Externalities) of the Pearson Edexcel International GCSE Economics (4EC1) specification, Issue 3, February 2026. There is a single tier of entry. All countries, firms and figures are invented. Read the study guide and the revision notes first. Course pages: Edexcel IGCSE Economics hub and printable checklist.

Questions

1. State two characteristics of a public good. [2]

2. Define privatisation. [2]

3. Country D has government spending of 84 billion units and national output of 280 billion units. Country E has government spending of 168 billion units and national output of 300 billion units.

(a) Calculate government spending as a percentage of national output for each country. [4] (b) State which country has the larger public sector and explain one reason why a country might choose a larger public sector. [2]

4. Explain two differences between the public sector and the private sector. [4]

5. A coastal town of 400 households is considering a flood barrier. It costs 1,500 units a year. Each household gains 5 units a year from the protection.

(a) Calculate the total benefit and the net benefit of the barrier. [2] (b) Explain why charging households would not lead a private firm to build the barrier. [4] (c) The council funds it by an equal charge on every household. Calculate the charge. [1]

6. An electricity firm makes 2,500 units a week. Its private cost is 62 per unit and its pollution creates an external cost of 17 per unit. It sells each unit for 70.

(a) Find the social cost per unit. [1] (b) Work out the total external cost. [1] (c) Calculate the firm’s weekly profit. [2] (d) Calculate the net gain or loss to society, and state which it is. [2] (e) Explain why the firm may continue to produce although society is worse off. [3]

7. A clinic gives 12,000 vaccinations a year. Each gives a private benefit of 22 units to the patient and an external benefit of 38 units to other people.

(a) Calculate the social benefit per vaccination. [1] (b) Calculate the total external benefit. [1] (c) Calculate the external benefit as a percentage of the social benefit, to one decimal place. [2] (d) Explain why a government might subsidise vaccinations. [4]

8. Explain how traffic congestion creates an external cost, and identify who bears it. [3]

9. A water company in Country G is privatised. Before the sale it employed 900 workers and charged 1.20 units per cubic metre. Afterwards it employs 720 workers and charges 1.38 units.

(a) Calculate the percentage change in the workforce. [2] (b) Calculate the percentage change in the price. [2] (c) Explain one benefit of the sale to the government. [2]

10. Explain how the problem of for whom to produce is solved in a mixed economy. [4]

11. Country H is deciding whether to privatise its state-owned rail company, which has few rivals. Evaluate whether it should do so. [9]

12. Country A has 12 million workers, of whom 1.8 million are employed by the government.

(a) Calculate the percentage of workers employed in the public sector. [2] (b) Explain two reasons why governments, and not private firms, provide education and national defence. [4]

Answers

1. Non-excludable: nobody can be stopped from using it once it exists [1]. Non-rival: use by one person leaves the same amount for everyone else [1]. [2] Examiner insight: Name the feature and add a short explanation; a bare word such as “shared” does not show the feature.

2. The transfer of ownership of an asset or business [1] from the public sector (government) to the private sector [1]. [2] Examiner insight: The definition needs both the direction of transfer and the idea of ownership; “selling things” alone is too vague.

3. (a) Country D: 84 ÷ 280 × 100 [1] = 30% [1]. Country E: 168 ÷ 300 × 100 [1] = 56% [1]. (b) Country E has the larger public sector [1]. A reason: it can fund services such as healthcare and education so that access does not depend on income [1]. [6] Examiner insight: Show the division so the method is visible; state the answer with the percentage sign, and tie the reason to the sector rather than just naming a service.

4. Ownership: the public sector is owned by the government, while the private sector is owned by individuals or shareholders [1]; this means public sector profits or losses fall on the taxpayer, while private owners keep the profit [1]. Aims: the public sector usually aims to meet needs and provide access [1], while the private sector usually aims to make profit [1]. (Accept control or funding as an alternative.) [4] Examiner insight: Each difference needs a contrast and a short development; naming a heading such as “aims” without saying what the aim is for each sector earns little.

5. (a) Total benefit = 400 × 5 = 2,000 units [1]. Net benefit = 2,000 − 1,500 = 500 units [1]. (b) The barrier protects everyone in the town whether or not they pay, so it is non-excludable [1]. One household’s protection does not reduce another’s, so it is non-rival [1]. Households can free ride, so few would pay voluntarily [1]. The firm’s revenue would not cover its cost, so no private firm supplies it [1]. (c) 1,500 ÷ 400 = 3.75 units [1]. [7] Examiner insight: A strong answer links both features to the free rider problem and ends on why revenue is too low; stating the features without the consequence leaves the chain incomplete.

6. (a) 62 + 17 = 79 per unit [1]. (b) 17 × 2,500 = 42,500 [1]. (c) Profit per unit = 70 − 62 = 8 [1]; × 2,500 = 20,000 [1]. (d) Social cost = 79 × 2,500 = 197,500 and revenue is 175,000, so (70 − 79) × 2,500 [1] = a loss of 22,500 to society [1]. (e) The firm counts only its private cost of 62 [1], so it sees a profit of 8 per unit [1]. The external cost falls on other people, so the firm does not pay it [1]. [9] Examiner insight: In the calculation parts give units and say gain or loss; in the explanation part, say whose cost the firm ignores, as the profit figure alone does not answer “why”.

7. (a) 22 + 38 = 60 [1]. (b) 38 × 12,000 = 456,000 [1]. (c) 38 ÷ 60 × 100 [1] = 63.3% [1]. (d) Patients consider only their private benefit of 22 [1]. Others also gain because the disease spreads less [1]. So fewer people are vaccinated than is best for society [1]. A subsidy lowers the price and raises take-up towards the socially best level [1]. [8] Examiner insight: Round as asked and show the fraction before rounding; for “explain why a government might”, a chain of cause and result scores better than a list of benefits.

8. Each extra driver slows other road users [1]. The extra time and fuel used by those drivers is a cost to them that the driver did not pay [1]. It falls on other drivers, bus passengers and businesses, which are third parties [1]. [3] Examiner insight: Name the third party and say what the cost is for them; “roads get busy” alone does not show an external cost.

9. (a) (720 − 900) ÷ 900 × 100 [1] = −20% [1]. (b) (1.38 − 1.20) ÷ 1.20 × 100 [1] = +15% [1]. (c) The government receives sale proceeds [1] and no longer needs to fund losses or subsidise the firm [1]. (Accept: less management time.) [6] Examiner insight: Keep the sign on a percentage change; a fall written without a minus or the word fall can be misread.

10. In the market, output goes to buyers with the income to pay for it [1], so people with higher incomes get more [1]. The government changes this by taxing higher incomes more heavily or paying benefits [1], and by providing services such as education or healthcare free or cheaply [1]. [4] Examiner insight: Cover both halves of the mixed economy; an answer that only describes the market does not answer for a mixed economy.

11. Points for privatisation (up to 4): sale proceeds for the government [1]; a profit motive may cut costs and improve efficiency [1]; the government saves any subsidy [1]; investment may rise as private owners can raise funds [1]. Points against (up to 4): with few rivals, the firm may raise fares [1]; unprofitable routes may be cut [1]; workers may lose jobs [1]; the government loses control over a key service [1]. Judgement (1): a supported conclusion, for example that with few rivals the case for privatisation is weaker unless a regulator or new competitors limit fares [1]. [9] Examiner insight: Weigh the gainers against the losers and make the conclusion depend on the stated lack of competition; a list of effects with no decision is only part of an evaluation.

12. (a) 1.8 ÷ 12 × 100 [1] = 15% [1]. (b) Education: has large external benefits [1], so a market would provide too little [1]. National defence: it is a public good, non-excludable and non-rival [1], so free riding means private firms could not charge enough [1]. [6] Examiner insight: Two different reasons are needed, and each should name the market problem behind it, such as external benefits or free riding.

Where marks are usually lost

• Writing “shared” or “used by everyone” instead of the terms non-excludable and non-rival.
• Treating a government-run service such as schooling as a public good.
• Defining an externality without naming a third party.
• Adding the external cost to the private benefit, or mixing up the two formulae.
• Stopping a percentage calculation at the division, or dropping the sign on a fall.
• Forgetting to multiply a per-unit figure by the quantity for a total.
• Describing the free rider problem as people refusing to use a good.
• Listing effects of privatisation on all four groups with no judgement.

Next steps

• Revise with the revision notes.
• Reread the study guide.
• See the wider topic in the Market System study guide.
• Check progress on the printable checklist and the course hub.
• Try the free 10-minute diagnostics at /diagnostics/.
• Book a free trial class.

Official syllabus

Pearson Edexcel International GCSE Economics (4EC1) specification, Issue 3, February 2026, published by Pearson Education Limited, sections 1.1.5 and 1.1.6.