Economics 0455 · IGCSE · Market failure

Market failure — practice question

China has constructed a new railway in Kenya linking the capital city, Nairobi, with the port of Mombasa. Kenya has to pay back the railway’s cost to China. Travel time has fallen a great deal, but ticket prices have risen and farmers have lost farmland beside the new route. Who carries the external costs of this scheme?

  • AChina who built the new railway
  • Bfarmers who have lost agricultural land
  • CKenya who must repay the cost to China
  • Dpassengers who pay the higher fare

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