1. Which statement is correct?
A In a command economy firms compete and profit maximise allocating resources efficiently.
B In a command economy resources are privately owned.
C In a market economy prices are used to signal the value of individual resources.
D In a market economy resources are allocated by central planners.

2. The diagram shows the market for a product, the production of which has both external costs and
external benefits.

What is the difference between the level of output that would be produced by the market and the
socially optimum level?
A WX B WY C XY D XZ

3. The government is considering building flood defences along a river. It has calculated the costs
and benefits as follows.

	Costs $m	Benefits $m
Private	450	260
External	60	190

According to cost-benefit analysis, which decision and reasoning about flood defences is correct?

	Decision	Reasoning
A	Build	External benefits are greater than external costs
B	Build	Social benefits are greater than private benefits
C	Do not build	Private costs are greater than external benefits
D	Do not build	Social costs are greater than social benefits

4. The graph shows the total utility (TU) obtained by a consumer from eating biscuits over a period
of one hour.

After eating how many biscuits does the consumer’s marginal utility begin to diminish?
A 3 B 4 C 5 D 6

5. The diagram shows budget lines for normal goods X and Y.

	Price of X	Price of Y	Level of consumer incomes
A	Fall	Rise	Fall
B	No change	Rise	No change
C	Rise	No change	No change
D	Rise	No change	Rise

Answers