9708A. 17 November

1. Over time the average total cost curve of a firm is lowered.
Which form of efficiency does this represent?
A allocative
B dynamic
C Pareto
D productive

2. The diagram shows the private and social marginal costs and benefits curves for the antibiotics market. The market equilibrium is at point X.

Why does market failure occur?
A There is overconsumption and overpricing.
B There is overproduction and under-pricing.
C There is underconsumption and under-pricing.
D There is underproduction and overpricing.

3. The table shows the results of a cost-benefit analysis of the construction of a new airport.

What is the total value, in US$ million, of all the externalities created by construction of the new
A 30 B 40 C 50 D 90

4. A utility-maximising consumer has a fixed income and can choose between good X and good Y.
The diagram shows her budget line and different consumption combinations (F, G, H, J, K and L) of products X and Y.

Which consumption combinations are currently available to her?:

  • A F, G, H and L;
  • B F, G, J and L;
  • C G, J and L only; or
  • D G, H, J and L.

5 Rational consumer Romesh spent 90 rupees buying herb X and spice Y. Both cost 10 rupees per gram.

Grams purchasedTotal Utility – Herb XTotal Utility – Spice Y

How much of each should he buy?

Herb X (grams)Spice Y (grams)


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