9708A. 8 February

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)

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

Apples consumedTotal utility

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?


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