1. The generation of electricity causes external costs. Who bears these external costs?
A the distributors who sell the electricity
B the electricity company that produces the electricity
C the government that subsidises the production of electricity
D the people living in the area where the electricity is generated

2. What must equal marginal cost when a profit-maximising firm produces at its allocatively efficient
output?
A average revenue
B average total cost
C total revenue
D total cost

3. What might reduce dynamic efficiency in an economy?
A government expenditure on enterprise education
B reinvestment of profits
C rising shareholder dividends
D the increase in innovation

4. In many countries, health authorities are concerned about the harmful effects of smoking
cigarettes. Governments have imposed high sales taxes on cigarettes and have conducted anti-smoking campaigns.
Why might the quantity of cigarettes demanded remain high?
A Better knowledge of health hazards is changing behaviour.
B Cigarette smoking will be replaced by cheaper alternatives.
C Consumer behaviour is irrational due to addiction.
D The income effect of a price rise makes consumers worse off.

5. What does a budget line show?
A the behaviour of a utility-maximising consumer
B the difference between an individual’s consumption and saving
C the monetary value of the disposable income of a consumer
D the maximum combinations of two products that a consumer can buy with a given level of income