1. What is most likely to improve the allocative efficiency of a market?
A a higher market concentration ratio
B collusion between firms in the market
C entry of new firms into the market
D mergers of firms in the market

2. The diagram shows a market in which there are negative externalities of production and positive
externalities of consumption.

What is the marginal external cost at the free market equilibrium level of output?
A EG B EF C FG D HI

3. What could be included in a cost-benefit analysis of a project to build a road bridge connecting an island community to the mainland?

	A fall in employment for ferry services	An increase in carbon emissions	A reduction in travel time for work	An increase in incomes for the community
A	Yes	No	No	Yes
B	Yes	Yes	No	No
C	Yes	Yes	Yes	Yes
D	No	No	Yes	Yes

4. The table shows the levels of total and average utility at different levels of a consumer’s weekly
consumption of a product.

Number consumed per week	Total utility	Average utility
1	4	4.0
2	9	4.5
3	15	5.0
4	20	5.0
5	24	4.8
6	27	4.5

After which level of weekly consumption does the diminishing marginal utility first occur?
A 3 B 4 C 5 D 6

5. Which statement about a budget line in consumer behaviour theory is correct?
A It illustrates consumer preference between two goods.
B It illustrates combinations of two goods that consumers are able to purchase with a given
income.
C It illustrates the least cost combination of goods that yield the same level of utility.
D It illustrates the income effect of a price change.

Answers