1. Which statement is correct?
A External cost equals social cost minus private cost.
B Private cost equals external cost minus social cost.
C Social cost equals external cost minus private cost.
D Social cost equals private cost minus external cost.

2. What is a negative externality from consumption?
A a new road that results in more sales at shops in the town centre
B a successful promotion of healthy eating that reduces days lost from work
C discharge of waste from a factory that damages fish in a local river
D increased popularity of smoking that increases demand on the health service

3. Which type of efficiency is identified by price = marginal cost?
A allocative
B dynamic
C productive
D technical

4. A consumer can purchase two goods, X and Y, from a given income.
What will cause the consumer’s budget line to make a parallel shift to the right?

	Consumer’s income	Price of good X	Price of good Y
A	10% decrease	20% decrease	10% decrease
B	10% decrease	20% decrease	20% decrease
C	10% increase	10% increase	20% decrease
D	10% increase	20% increase	20% increase

5. The line RS in the diagram shows the different combinations of goods X and Y that a consumer
can afford with her present income.

The consumer’s original equilibrium is at M.
What could explain a subsequent change in her equilibrium position to N?
A a change in her tastes
B an increase in the price of X and a fall in the price of Y
C an increase in the price of X and a smaller percentage increase in the price of Y
D equal percentage increases in her income and in both prices

Answers