1. The diagram shows a monopolistically competitive firm.
Which point represents allocative efficiency?

2. What is an argument against government intervention when there is market failure?
A Government intervention could increase positive externalities.
B Government intervention could increase the availability of merit goods.
C Government intervention could lead to a less efficient outcome.
D Government intervention could reduce information failure.

3. A government is choosing between four routes for a new road. The table provides details of the costs and benefits associated with each route.
The government wants to get the highest return for taxpayers in terms of the social benefit relative to the private cost.
Which route will the government choose?

4. Donald maximises his utility when buying paperback books and audio books. The price of a
paperback book = $3 and the price of an audio book = $6.
If the marginal utility of the last paperback book was 12 units of utility (utils), what was the marginal utility of the last audio book purchased?
A 2 utils B 12 utils C 16 utils D 24 utils

5. Which statement correctly describes the result of a price increase for an inferior good?
A Both the substitution effect and the income effect cause the consumer to buy less of the
good.
B Both the substitution effect and the income effect cause the consumer to buy more of the
good.
C The substitution effect causes the consumer to buy less of the good and the income effect
causes the consumer to buy more of the good.
D The substitution effect causes the consumer to buy more of the good and the income effect
causes the consumer to buy less of the good.