1. Which condition must be met for economic efficiency to be achieved?
A Marginal social benefits are at a maximum in the production of all goods.
B Marginal social costs are at a minimum in the production of all goods.
C Marginal social costs are zero in the production of all goods.
D Marginal social costs equal marginal social benefits in the production of all goods.

2. What is a characteristic of a merit good?
A free at the point of use
B has zero marginal costs
C non-competitive in use
D possesses positive externality

3. Which statement is correct?
A External benefit minus private benefit equals social benefit.
B Private benefit minus external benefit equals social benefit.
C Social benefit minus external benefit equals private benefit.
D Social benefit plus private benefit equals external benefit.

4. When does a consumer achieve maximum total utility (TU), according to marginal utility (MU)
theory for two goods, X and Y, with different prices (P)?
A MU_X = MU_Y
B
C
D TU_X = TU_Y

5. The diagram shows a change in a consumer’s budget line from RR to SS.

What might explain why this occurred?
A a decrease in income and a fall in the price of X
B a decrease in income and a rise in the price of X
C an increase in income and a fall in the price of X
D an increase in income and a rise in the price of X

Answers