Economics Quiz

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?

• External cost is greater than external benefit.

• Private cost is greater than external cost.

• Private cost is greater than private benefit.

• Social cost is greater than social benefit.

At which price does allocative efficiency occur?

• A

• B

• C

• D

A government is considering building a new railway line in its country. It has to choose one of four high-speed routes. The benefits and costs of each route are shown below. Which route should be chosen?

• Route A: private benefits $14bn, external benefits $20bn, private costs $0.4bn, external costs $0.1bn

• Route B: private benefits $16bn, external benefits $22bn, private costs $1.6bn, external costs $0.4bn

• Route C: private benefits $18bn, external benefits $12bn, private costs $0.2bn, external costs $1bn

• Route D: private benefits $20bn, external benefits $18bn, private costs $2bn, external costs $4bn

The table shows the total utility gained by a consumer as they consume more apples. At which level of consumption would the marginal utility be zero?

• 1

• 4

• 5

• 6

In the diagram, I is a consumer’s initial indifference curve, 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?

What is an example of horizontal integration?

• A bank takes over a travel agent.

• A car manufacturer buys a component supplier.

• A cotton mill doubles its output of existing products.

• Two breweries merge.

The diagram shows a profit-maximising monopolist. What would be the change in price if this monopolist changed from profit maximisation to revenue maximisation?

• R to S

• R to T

• U to S

• U to T

The goal of firm X is to make a minimum acceptable level of profit. What does this describe?

• profit maximisation

• profit satisficing

• revenue maximisation

• sales maximisation

A monopoly firm makes only normal profit in the long run. What is most likely to explain this?

The diagram shows the average fixed cost (AFC), average variable cost (AVC) and average total cost (ATC) curves which are the same for three firms X, Y and Z. D_X, D_Y, and D_Z are the three respective demand curves which are different for the three firms. All three firms seek to make a profit. Which statement is not correct?

• Firm X will choose not to produce at all.

• Firm Y is likely to operate in the long run but not in the short run.

• Firm Y is likely to operate in the short run but not in the long run.

• Firm Z will operate in both the short run and the long run.