1. A project has a social cost of $100 million, a private cost of $40 million and an external benefit of $20 million. Its net social value is zero.
What can be concluded about the project?
A External cost is greater than external benefit.
B Private cost is greater than external cost.
C Private cost is greater than private benefit.
D Social cost is greater than social benefit.

2. The diagram shows the cost and revenue curves for a firm.
At which price does allocative efficiency occur?

3. A government is considering improving the rail links in its country. It also has to choose one of
four high-speed routes.
The benefits and costs of each route are shown below.
Which route should be chosen?

	Private benefits ($bn)	External benefits ($bn)	Private costs ($bn)	External costs ($bn)
A	14	20	0.4	0.1
B	16	22	1.6	0.4
C	18	12	0.2	1
D	20	18	2	4

4. The table shows the total utility gained by a consumer as they consume more apples.

Apples consumed	Total utility
0	0
1	10
2	18
3	24
4	28
5	30
6	30

At which level of consumption would the marginal utility be zero?
A 1 B 4 C 5 D 6

5. In the indifference curve diagram point M is the consumer’s initial equilibrium, JK and JL are
budget lines and MN is the substitution effect of a fall in the price of good X.
If good X is a Giffen good, which point will be the consumer’s new equilibrium point after the fall
in the price of good X?

Answers