9708A. 10 December

1. Which statement about a product with external costs must be correct?
A The consumption of the product has positive effects on third parties.
B The private costs of its production exceed the social costs of its production.
C The production of the product has negative effects on third parties.
D The social costs of its production exceed the social benefits of its production.

2. What is correct if a firm in a perfectly competitive market is maximising its long-run profits?

Is it allocatively efficient?Is it productively efficient?

3. The table shows the results of a cost-benefit analysis undertaken by a government when it was considering investing US$200 million in building a new airport.

US$ Million
Private benefits230
Private costs200
External costs50

The government will build the airport if the net social benefit creates a return of at least 10% on
its investment.
What will the minimum external benefit need to be in US$ million to achieve this?
A 10 B 20 C 30 D 40

4. The diagram shows a total utility curve for a consumer.
At which point does marginal utility equal zero?

5. The diagram shows a consumer’s indifference curves and a budget line for electronic goods and food.
If income and prices remain the same, at which point on the diagram will the consumer maximise satisfaction?


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