1. A government makes a study of the costs and benefits of allowing a leisure company to develop
a holiday resort in an area of natural beauty.
When should the government allow this development to take place?
A if private benefits exceed private costs
B if private costs exceed private benefits
C if social benefits exceed social costs
D if social costs exceed social benefits

2. What is an example of market failure?
A atmospheric pollution in cities due to emissions from cars
B free entry for children to an art gallery
C high rents for housing occupied by low income households
D the inability of some football supporters to afford tickets to watch games

3. The diagram shows a firm’s long-run cost and revenue curves.

At which level of output is the firm both allocatively and productively efficient?
A OA B OB C OC D OD

4. When does the slope of a budget line always change?
A A person buys more of one of the two goods.
B A person’s income changes.
C One of the two goods becomes more desirable.
D The price of one of the two goods changes.

5. The points in the diagram represent different combinations of good X and good Y.

An individual prefers more of both goods to fewer, but would prefer not to give up even a single
unit of X to obtain additional units of Y.
How would she rank (in descending order of preference) the combinations shown in the diagram?
A KLMN B LNKM C MKNL D NMLK

Answers