1 What is a negative consumption externality associated with chewing gum?
A better dental hygiene from chewing gum
B costs of the ingredients in chewing gum
C discarded chewing gum on pavements
D smells from chewing gum factories

2. A firm produced its goods at an average cost of $14. It then produces the same output at a lower
average cost by different methods of production. The price remains above the marginal cost.
In which ways is this firm now more efficient?

	Allocative Efficiency	Dynamic Efficiency
A	No	No
B	No	Yes
C	Yes	No
D	Yes	Yes

3. In 2008 Beijing held the Olympic Games and built a new stadium and infrastructure. 1.5 million
people lost their homes and were relocated far away from their communities. Factories were
closed during the games to reduce air pollution. Today, the stadium is a major tourist attraction
and the athletes’ accommodation is used as apartments.
For which group is the likely excess of marginal social benefit over marginal social cost the
greatest?
A construction workers who built the site
B factory workers who returned to their jobs after the games
C residents who were rehoused far away from Beijing
D those who live in the former athletes’ accommodation

4. The graph shows the budget line for a household as used in indifference curve analysis.

What can be concluded about the amount of income that could be spent by the household?
A It is greater at point R than point S.
B It is greater at point T than point S.
C It is greatest at point S.
D It is the same at points R, S and T.

5. Which act of purchase or consumption is most likely to illustrate the law of diminishing marginal
utility?
A the final course of an ‘eat all you can’ banquet to end an evening out
B the last coin to complete an enthusiast’s coin collection
C the second of the two rolls of wallpaper needed to decorate a room
D the tenth driving lesson needed to enable a learner to pass the driving test

Answers