Private costs and benefits, externalities and social costs and benefits — Paper 3 · A Level Economics 9708

8 Which is an example of an external diseconomy? A difficulties in co-ordinating activities in a large organisation B difficulties in motivating workers in a large organisation C higher transport costs as a firm’s market expands D increased traffic congestion as industries expand

1 marks

Answer: D

This question in 9708/31 May/June 2010

7 Which is an example of an external diseconomy? A difficulties in co-ordinating activities in a large organisation B difficulties in motivating workers in a large organisation C higher transport costs as a firm’s market expands D increased traffic congestion as industries expand

1 marks

Answer: D

This question in 9708/32 May/June 2010

7 Which is an example of an external diseconomy? A difficulties in co-ordinating activities in a large organisation B difficulties in motivating workers in a large organisation C higher transport costs as a firm’s market expands D increased traffic congestion as industries expand

1 marks

Answer: D

This question in 9708/33 May/June 2010

11 The diagram shows the private and social marginal costs and benefits at different volumes of traffic. MSC MPC + tax x z MPC costs, y benefits MPB = MSB O volume of tra f fi c The imposition of a congestion tax raises the MPC curve to MPC + tax. Which area measures the resulting reduction in the deadweight loss? A x + y only B x + y + z C y only D z only

1 marks

Answer: A

This question in 9708/31 May/June 2011

10 The diagram shows the private and social marginal costs and benefits at different volumes of traffic. MSC MPC + tax x z MPC costs, y benefits MPB = MSB O volume of tra f fi c The imposition of a congestion tax raises the MPC curve to MPC + tax. Which area measures the resulting reduction in the deadweight loss? A x + y only B x + y + z C y only D z only

1 marks

Answer: A

This question in 9708/32 May/June 2011

10 The diagram shows the private and social marginal costs and benefits at different volumes of traffic. MSC MPC + tax x z MPC costs, y benefits MPB = MSB O volume of tra f fi c The imposition of a congestion tax raises the MPC curve to MPC + tax. Which area measures the resulting reduction in the deadweight loss? A x + y only B x + y + z C y only D z only

1 marks

Answer: A

This question in 9708/33 May/June 2011

1 Which condition must be met for economic efficiency to be achieved? A Marginal social costs are zero in the production of all goods. B Marginal social costs are at a minimum in the production of all goods. C Marginal social benefits are at a maximum in the production of all goods. D Marginal social costs equal marginal social benefits in the production of all goods.

1 marks

Answer: D

This question in 9708/31 May/June 2012

15 A good gives rise to external benefits and is produced under conditions of imperfect competition. Which statement must be true? A Benefits to consumers exceed the benefits to society. B Firms producing the good will make a loss. C Output of the good is below the socially optimum level. D Social costs of production exceed private costs.

1 marks

Answer: C

This question in 9708/32 May/June 2012

1 Which condition must be met for economic efficiency to be achieved? A Marginal social costs are zero in the production of all goods. B Marginal social costs are at a minimum in the production of all goods. C Marginal social benefits are at a maximum in the production of all goods. D Marginal social costs equal marginal social benefits in the production of all goods.

1 marks

Answer: D

This question in 9708/33 May/June 2012

1 What will happen if a firm is subsidised by an amount equal to the external benefits that it confers on the rest of society? A There will be no effect upon production. B The firm will produce less. C There will be a misallocation of resources. D Resource allocation will be improved.

1 marks

Answer: D

This question in 9708/32 Oct/Nov 2012

14 All firms in an economy produce at levels of output where price and marginal private cost are equal. Why might this not be sufficient to ensure that allocative efficiency is achieved? A a small number of buyers and sellers B differences in consumers’ preferences C product differentiation D the presence of externalities

1 marks

Answer: D

This question in 9708/32 Oct/Nov 2012

13 What does not pose a threat to the achievement of allocative efficiency? A imperfect information on the part of consumers B income inequalities C the existence of externalities D the presence of monopolistic elements

1 marks

This question in 9708/33 Oct/Nov 2012

15 The government introduces a congestion charge on motorists who drive their vehicles within a designated urban zone. What will be the impact on the overall economic welfare of those who continue to use their cars and on those who switch to travelling by bus? impact on those who impact on those who continue to use their cars switch to buses A loss uncertain B loss loss C uncertain loss D uncertain uncertain

1 marks

This question in 9708/33 Oct/Nov 2012

24 What would an economist include when using social cost-benefit analysis to assess policies to reduce the level of unemployment? changes in changes in changes in crime rates mental health work skills A no no no B no no yes C yes no yes D yes yes yes

1 marks

Answer: D

This question in 9708/31 May/June 2013

24 What would an economist include when using social cost-benefit analysis to assess policies to reduce the level of unemployment? changes in changes in changes in crime rates mental health work skills A no no no B no no yes C yes no yes D yes yes yes

1 marks

Answer: D

This question in 9708/33 May/June 2013

13 The diagram shows the supply and demand curves of a good, and its marginal social cost of production (MSC). MSC S price, x y costs z D w O output Q Which area measures the net benefit to society if output OQ is produced? A x B x + y C x + z + w D x – y

1 marks

Answer: D

This question in 9708/33 Oct/Nov 2013

16 A good gives rise to external benefits and is produced under conditions of monopolistic competition. Which statement must be correct? A Output of the good is at the socially optimum level. B Output of the good is above the socially optimum level. C Private costs exceed social benefits. D Social benefits exceed private benefits.

1 marks

Answer: D

This question in 9708/31 Oct/Nov 2014

9 Which is an example of an external diseconomy? A difficulties in coordinating activities in a large organisation B difficulties in motivating workers in a large organisation C higher transport costs as a firm’s market expands D increased traffic congestion as industries expand

1 marks

Answer: D

This question in 9708/31 May/June 2015

14 In the diagram, D is the demand curve for cigarettes, S is the supply curve and MSC is the marginal social cost curve. MSC S1 S price P D O Q quantity The introduction of a specific tax on cigarettes causes the supply curve to shift to S1. What are likely to be the impacts of the tax on economic efficiency and the tax system? economic efficiency tax system A improves less regressive B improves more regressive C worsens less regressive D worsens more regressive

1 marks

Answer: B

This question in 9708/31 May/June 2015

15 At present, motorists who drive their cars within area 1 on the map pay a daily congestion charge of $8. However, motorists who live within the congestion charge zone are eligible for a 90% discount. X Y Z area 1 area 2 Which car journeys would decrease in number if the congestion zone area were extended to include area 2? A journeys from point X to point Z B journeys from point Y to point X C journeys from point Y to point Z D journeys from point Z to point Y

1 marks

This question in 9708/31 Oct/Nov 2015

16 Which government microeconomic policy is not usually aimed at correcting allocative inefficiency in an economy? A anti-monopoly legislation B congestion charges for the use of roads in cities C pollution taxes imposed on various firms D subsidies for agricultural producers

1 marks

Answer: D

This question in 9708/32 Oct/Nov 2015

2 A Chinese proverb states that ‘One generation plants a tree and the next generation enjoys its shade’. Which economic concept does the proverb best illustrate? A comparative advantage B division of labour C positive externality D public good

1 marks

Answer: C

This question in 9708/33 May/June 2016

3 The diagram shows the marginal social benefit (MSB) and marginal social cost (MSC) from a production process. 8 MSC 6 $ MSB, 4 MSC 2 MSB 0 0 10 20 output What is the socially desirable level of output? A at 0 units because MSC is zero B between 0 and 10 units because MSB is greater than MSC C at 10 units because MSB equals MSC D at 20 units because MSB is exhausted

1 marks

Answer: C

This question in 9708/33 May/June 2016

13 What will happen if a firm is subsidised by an amount equal to the external benefits that it gives to the rest of society? A Resource allocation will be improved. B The firm will produce less. C There will be a misallocation of resources. D There will be no effect upon production.

1 marks

Answer: A

This question in 9708/33 May/June 2016

3 A proposal for a new power station was rejected by the government because it was not socially beneficial. The government calculated that the private costs would be $800 m, private benefits $900 m and external benefits $300 m. What must have been true about the external costs of the power station? A External costs were equal to external benefits. B External costs were greater than $400 m. C External costs were less than external benefits. D There were no external costs.

1 marks

Answer: B

This question in 9708/32 Oct/Nov 2016

15 The government wants to regulate the consumption of a demerit good in order to increase society’s net welfare. In which situation will society’s net welfare increase? A The fall in the marginal social benefit is greater than the fall in the marginal social cost. B The fall in the marginal social cost is greater than the fall in the marginal social benefit. C The fall in the total social benefit is greater than the fall in the total social cost. D The fall in the total social cost is greater than the fall in the total social benefit.

1 marks

Answer: D

This question in 9708/32 Oct/Nov 2016

1 Which equation is correct? A Private benefit equals social benefit minus net external benefit. B Private cost equals social cost minus net private benefit. C Social benefit equals net private benefit plus net private cost. D Social cost equals private cost plus external cost.

1 marks

Answer: D

This question in 9708/33 Oct/Nov 2016

2 The government has to choose the best of four routes to build a new railway line. The benefits and costs of each are shown in $m in the table. Which route would be chosen? private external external private cost benefit benefit cost A 600 600 100 150 B 700 600 150 200 C 800 500 100 150 D 900 700 200 300

1 marks

Answer: D

This question in 9708/33 Oct/Nov 2016

3 A government is planning to intervene in a market to fix output at the socially desirable level by giving a subsidy. MSC = MPC T costs / Y benefits S X MSB MPB O R W output To achieve its objective, what should be the subsidy per unit? A ST B SX C TY D XY

1 marks

Answer: D

This question in 9708/33 Oct/Nov 2016

1 When will an economic activity create a net social benefit? A when (private benefit + external benefit) – (private cost + external cost) is negative B when (private benefit + external benefit) – (private cost + external cost) is positive C when (private benefit + private cost) – (external benefit + external cost) is negative D when (private benefit + private cost) – (external benefit + external cost) is positive

1 marks

Answer: B

This question in 9708/32 May/June 2017

2 The diagram shows the private and social costs and benefits of production in a free market that result in market failure. MSC costs, benefits MPC MSB MPB O K L M N output Which change in output would be necessary to overcome this market failure? A from K to M B from M to N C from M to L D from N to L

1 marks

Answer: C

This question in 9708/32 May/June 2017

1 When will an economic activity create an external cost? A when its social cost minus its private cost is negative B when its social cost minus its private cost is positive C when its social cost minus its social benefit is negative D when its social cost minus its social benefit is positive

1 marks

Answer: B

This question in 9708/33 May/June 2017

2 A government is planning to intervene in a free market to fix output at the level that maximises the economic welfare of society. MSC = MPC costs, benefits Y T X S MSB MPB O W R output To achieve its objective, what should the government introduce? A a subsidy of TS B a subsidy of YX C a tax of TS D a tax of YX

1 marks

Answer: A

This question in 9708/33 May/June 2017

1 In which situation are there definitely positive externalities? A Private benefits exceed private costs. B Private benefits exceed social benefits. C Social benefits exceed private benefits. D Social benefits exceed private costs.

1 marks

Answer: C

This question in 9708/32 Oct/Nov 2018

2 A cost-benefit analysis is carried out on the construction of a hydroelectric power station. Which combination of circumstances would be most likely to lead to the scheme being approved? A Private benefits are greater than private costs. B Social benefits are greater than social costs. C Social benefits are greater than total costs. D Total costs are greater than total revenue.

1 marks

Answer: B

This question in 9708/32 Oct/Nov 2018

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.

1 marks

Answer: A

This question in 9708/32 Feb/March 2019

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 external benefits private costs external costs $bn $bn $bn $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

1 marks

Answer: B

This question in 9708/32 Feb/March 2019

17 The diagram shows the market for a good that creates a negative externality in production and no positive externalities. The current level of consumption is OQ1. S4 price Z S3 Y S2=MSC=MPC+MEC P4 P3 S1=MPC X P2 W P1 V D=MPB=MSB O Q4 Q3 Q2 Q1 quantity The government decides to tax producers of the good. Which size of tax on producers would result in a socially efficient allocation of resources? A VW B VX C VY D VZ

1 marks

Answer: B

This question in 9708/32 Feb/March 2019

2 The diagram shows the market for a product, the production of which has both external costs and external benefits. costs, MSC benefits MPC MSB MPB O W X Y Z quantity 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

1 marks

Answer: C

This question in 9708/32 May/June 2019

3 The government is considering building flood defences along a river. It has calculated the costs and benefits as follows. costs benefits $m $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 the external benefits D do not build social costs are greater than the social benefits

1 marks

Answer: D

This question in 9708/32 May/June 2019

15 What is the specific advantage of pollution permits, when compared with an alternative policy of taxes levied on the quantity of pollutants emitted by firms? A firms have a financial incentive to reduce pollution B no monitoring of firm’s emissions is required C pollution levels can be reduced to zero D the reduction in the level of pollution is more predictable

1 marks

Answer: D

This question in 9708/32 May/June 2019

1 Some multinational oil companies extracting oil in developing countries are now required to repair the damage they do to the environment. Which best describes the total costs incurred by the oil companies in such circumstances? A external costs B private costs plus external costs C social costs plus external costs D social costs plus private costs

1 marks

Answer: B

This question in 9708/32 Oct/Nov 2019

3 A government decided to approve a road building scheme because it was socially beneficial. In making its decision it calculated private costs at $800m, private benefits at $800m and external costs at $150m. What must have been true about the external benefits of the scheme? A External benefits equalled private benefits. B External benefits exceeded external costs. C External benefits exceeded $200m. D There were no external benefits.

1 marks

Answer: B

This question in 9708/32 Oct/Nov 2019

19 A government regards fresh fruit and vegetables as merit goods, and subsidises agriculture to boost their production. What could be a government failure arising from these subsidies? A cheaper fresh fruit and vegetables B land clearance reducing wildlife C lower spending on treating dietary illnesses D more jobs picking fruit and vegetables

1 marks

Answer: B

This question in 9708/32 Oct/Nov 2019

1 Which statement about a product with external costs must be correct? A The consumption of the product has positive effects on third parties. B The private costs of its production exceed the social costs of its production. C The production of the product has negative effects on third parties. D The social costs of its production exceed the social benefits of its production.

1 marks

Answer: C

This question in 9708/32 Feb/March 2020

3 The table shows the results of a cost-benefit analysis undertaken by a government when it was considering investing US$200 million in building a new airport. US$ million private benefits 230 private costs 200 external costs 50 The government will build the airport if the net social benefit creates a return of at least 10% on its investment. What will the minimum external benefit need to be in US$ million to achieve this? A 10 B 20 C 30 D 40

1 marks

Answer: D

This question in 9708/32 Feb/March 2020

17 At present, motorists who drive their cars within area 1 on the map pay a daily congestion charge of $8. X Y Y Z area 1 area 2 area 2 area 2 Which car journeys would decrease in number if the congestion charge area were extended to include area 2? A journeys from point X to point Z B journeys from point X to point Y C journeys from point Y to point Z D journeys from point Z to point Y

1 marks

Answer: B

This question in 9708/32 Feb/March 2020

1 What is the main aim of cost-benefit analysis? A to allow firms to maximise their private benefit and minimise the external cost B to equate total social benefit to the total social cost of a project C to find the correct level of direct tax to internalise the external cost of a project D to find the highest positive difference between total benefit and total cost

1 marks

Answer: D

This question in 9708/31 Oct/Nov 2020

2 The diagram shows a firm in perfect competition that creates pollution. MSC revenue, J MPC costs M K PC AR = MR L O QS QC output What represents the external cost? A JK B JM C KL D MK

1 marks

Answer: A

This question in 9708/31 Oct/Nov 2020

2 A local council is considering building a passenger terminal at a port so that it can benefit the large cruise ships that dock there. It undertakes a cost–benefit analysis. What would be included as an external cost in the local council’s cost–benefit analysis? A the cost of a ticket for a passenger to travel on a cruise ship B the cost of fuel to operate the cruise ships C the costs paid by cruise ships when they dock at the port D the cost to a fishing fleet of relocating to another port

1 marks

Answer: D

This question in 9708/32 Oct/Nov 2020

3 The expected marginal private benefits (MPB), marginal social benefits (MSB), marginal private costs (MPC) and marginal social costs (MSC) for the building of a new road are shown in the diagram. The government intervenes so that the socially desirable output is achieved. MSC price MPC MSB MPB O Q1 Q2Q3 Q4 quantity Which combination shows the equilibrium output without government intervention and with government intervention? without government with government intervention intervention A Q4 Q1 B Q3 Q2 C Q3 Q4 D Q4 Q1

1 marks

Answer: B

This question in 9708/32 Oct/Nov 2020

1 Which statement is correct? A marginal social benefit = marginal private benefit – marginal external benefit B marginal social cost = marginal private cost + marginal external cost C negative externality = marginal social benefit – marginal social cost D positive externality = marginal private benefit

1 marks

Answer: B

This question in 9708/33 Oct/Nov 2020

2 The diagram shows the costs and benefits of the production of a good. The firm is operating at output Q1. MPC costs, P1 V benefits MSC P2 U P3 W X MSB = MPB O Q1 Q2 quantity What would be necessary to move the production to the optimal level of output? A introducing a subsidy of UW B introducing a subsidy of VW C setting a maximum price of P2 D setting a minimum price of P3

1 marks

Answer: B

This question in 9708/33 Oct/Nov 2020

2 The diagram shows the private and social marginal costs and benefits curves for the antibiotics market. The market equilibrium is at point X. cost MPC = MSC benefit P1 X P MSB MPB O Q Q1 output Why does market failure occur? A There is overconsumption and overpricing. B There is overproduction and under-pricing. C There is underconsumption and under-pricing. D There is underproduction and overpricing.

1 marks

Answer: C

This question in 9708/32 Feb/March 2021

3 The table shows the results of a cost-benefit analysis of the construction of a new airport. US$ million private cost 400 private benefit 440 social cost 450 social benefit 480 What is the total value, in US$ million, of all the externalities created by construction of the new airport? A 30 B 40 C 50 D 90

1 marks

Answer: D

This question in 9708/32 Feb/March 2021

14 The diagram shows a sign beside a busy road. This road was recently cleared of 17 bags of litter. Clearing litter puts lives at risk. What is this an example of? A free good B government regulation C merit good D nudge theory

1 marks

Answer: D

This question in 9708/32 Feb/March 2021

1 What is a negative consumption externality associated with chewing gum? A better dental hygiene from chewing gum B costs of the ingredients in chewing gum C discarded chewing gum on pavements D smells from chewing gum factories

1 marks

Answer: C

This question in 9708/31 May/June 2021

3 In 2008 Beijing held the Olympic Games and built a new stadium and infrastructure. 1.5 million people lost their homes and were relocated far away from their communities. Factories were closed during the games to reduce air pollution. Today, the stadium is a major tourist attraction and the athletes’ accommodation is used as apartments. For which group is the likely excess of marginal social benefit over marginal social cost the greatest? A construction workers who built the site B factory workers who returned to their jobs after the games C residents who were rehoused far away from Beijing D those who live in the former athletes’ accommodation

1 marks

Answer: D

This question in 9708/31 May/June 2021

14 When there are positive externalities in consumption, what can be concluded about the output of the market? A Output must be above the allocative efficient level. B Output must be at the allocative efficient level. C Output must be below the allocative efficient level. D Output can be above or below the allocative efficient level.

1 marks

Answer: C

This question in 9708/31 May/June 2021

3 A government is choosing between four routes for a new road. The table provides details of the costs and benefits associated with each route. The government wants to get the highest return for taxpayers in terms of the social benefit relative to the private cost. Which route will the government choose? route ($ million) private private external costs benefits benefits A 20 25 5 B 25 30 10 C 20 25 10 D 30 35 10

1 marks

Answer: C

This question in 9708/32 May/June 2021

14 A government intends to use pollution permits to reduce environmental damage. Under what circumstances is this policy most likely to fail to achieve the intended reduction? A Firms within the scheme are required to have a sufficient number of permits to cover the amount of pollution generated in production. B Firms improve their technology to reduce the number of permits they require. C Firms that do not use all of their permits can sell some of them to other firms. D The permits do not impose strict enough limits on carbon emissions.

1 marks

Answer: D

This question in 9708/32 May/June 2021

1 What is a negative consumption externality associated with chewing gum? A better dental hygiene from chewing gum B costs of the ingredients in chewing gum C discarded chewing gum on pavements D smells from chewing gum factories

1 marks

Answer: C

This question in 9708/33 May/June 2021

3 In 2008 Beijing held the Olympic Games and built a new stadium and infrastructure. 1.5 million people lost their homes and were relocated far away from their communities. Factories were closed during the games to reduce air pollution. Today, the stadium is a major tourist attraction and the athletes’ accommodation is used as apartments. For which group is the likely excess of marginal social benefit over marginal social cost the greatest? A construction workers who built the site B factory workers who returned to their jobs after the games C residents who were rehoused far away from Beijing D those who live in the former athletes’ accommodation

1 marks

Answer: D

This question in 9708/33 May/June 2021

14 When there are positive externalities in consumption, what can be concluded about the output of the market? A Output must be above the allocative efficient level. B Output must be at the allocative efficient level. C Output must be below the allocative efficient level. D Output can be above or below the allocative efficient level.

1 marks

Answer: C

This question in 9708/33 May/June 2021

2 What is an example of a negative externality? A the non-provision of public goods by the market B indirect taxation that fails to internalise the external cost C monopoly power leading to reduced output and a higher price D the production of a good that has a harmful effect on a third party

1 marks

Answer: D

This question in 9708/31 Oct/Nov 2021

14 To tackle pollution, some governments set standards, such as production limits, while others use tradeable pollution permits. What is a correct comparison of the two approaches? A Standards give more incentive for continued pollution reduction. B Standards make greater use of the market mechanism. C Tradeable pollution permits are simpler to devise and administer. D Tradeable pollution permits provide a more equitable treatment of firms.

1 marks

Answer: D

This question in 9708/31 Oct/Nov 2021

2 Medical researchers indicated that drinking too many sugary drinks is bad for health. Government intervention to impose a tax on the sale of sugary drinks might help solve which market failures? negative negative over- externalities of externalities of consumption of consumption production demerit goods A no yes yes B yes yes no C yes no yes D yes no no

1 marks

Answer: C

This question in 9708/32 Oct/Nov 2021

3 A government uses a cost–benefit analysis approach to infrastructure projects. It is considering building a new railway to link a city centre to its airport. It estimates the following. $ billion private costs 1.0 social costs 1.7 private benefits 0.5 external benefits 1.8 What should the government decide and why? decision reason A do not proceed total costs exceed external benefits B do not proceed total costs exceed total benefits C proceed private costs exceed private benefits D proceed social benefits exceed social costs

1 marks

Answer: D

This question in 9708/32 Oct/Nov 2021

3 The private benefit of an activity is greater than the private cost. The social benefit of the same activity is less than the social cost. What must be true of the activity? A external benefit = external cost B external benefit > external cost C external benefit < external cost D external benefit > private benefit

1 marks

Answer: C

This question in 9708/31 May/June 2022

14 A government issues free non-tradeable pollution permits to firms. They specify the maximum amount of polluting gases these firms are allowed to emit. In a change in legislation, the permits can be traded with other firms. Assuming that all other costs and revenues remain the same, what will be the impact on the profits of the firms that are now buyers or sellers of the permits? profits of buyers profits of sellers of permits of permits A decrease decrease B decrease increase C increase decrease D increase increase

1 marks

Answer: B

This question in 9708/31 May/June 2022

3 The private benefit of an activity is greater than the private cost. The social benefit of the same activity is less than the social cost. What must be true of the activity? A external benefit = external cost B external benefit > external cost C external benefit < external cost D external benefit > private benefit

1 marks

Answer: C

This question in 9708/33 May/June 2022

14 A government issues free non-tradeable pollution permits to firms. They specify the maximum amount of polluting gases these firms are allowed to emit. In a change in legislation, the permits can be traded with other firms. Assuming that all other costs and revenues remain the same, what will be the impact on the profits of the firms that are now buyers or sellers of the permits? profits of buyers profits of sellers of permits of permits A decrease decrease B decrease increase C increase decrease D increase increase

1 marks

Answer: B

This question in 9708/33 May/June 2022

2 The diagram shows the costs and benefits of producing a good. The good has negative externalities in production and positive externalities in consumption. The free market equilibrium is at point X. What is the new equilibrium point when the externalities are taken into consideration? costs, MSC1 benefits B $ MPC A X MSC2 C D MSB1 MPB MSB2 O output

1 marks

Answer: B

This question in 9708/31 Oct/Nov 2022

3 The Airports Commission in the UK recommended an expansion of airport X rather than airport Y. In considering the social costs and benefits of this decision, what would be taken into account when calculating the external cost? A the additional noise pollution suffered by residents local to airport X B the financial loss suffered by airlines operating at airport Y C the increase in profits of the firm operating airport X D the monetary cost of the construction to expand airport X

1 marks

Answer: A

This question in 9708/31 Oct/Nov 2022

15 Too many flights in the airline industry cause unnecessary damage to the environment. Which measure is most likely to result in the socially optimal number of flights? A a complete ban on flights removing all private and external costs B greater deregulation of the global airline industry C publishing information to highlight the negative effects of flying on the environment D the payment of a subsidy per passenger equal to the difference between the private and social benefit

1 marks

Answer: C

This question in 9708/31 Oct/Nov 2022

2 The diagram shows a market in which there are negative externalities of production and positive externalities of consumption. cost, MSC benefit H E F MPC I G J MSB MPB O Q1 Q2 quantity What is the marginal external cost at the free market equilibrium level of output? A EG B EF C FG D HI

1 marks

Answer: A

This question in 9708/32 Oct/Nov 2022

3 What could be included in a cost-benefit analysis of a project to build a road bridge connecting an island community to the mainland? a fall in a reduction in an increase in an increase in employment for travel time for incomes for the carbon emissions ferry services work community A yes no no yes B yes yes no no C yes yes yes yes D no no yes yes

1 marks

Answer: C

This question in 9708/32 Oct/Nov 2022

13 The government wants to regulate the consumption of a demerit good in order to increase society’s net welfare. In which situation will society’s net welfare increase? A The fall in the marginal social benefit is greater than the fall in the marginal social cost. B The fall in the marginal external cost is greater than the fall in the marginal external benefit. C The fall in the total social benefit is greater than the fall in the total social cost. D The fall in the total social cost is greater than the fall in the total social benefit.

1 marks

Answer: D

This question in 9708/32 Oct/Nov 2022

2 The transport authority in a city is considering building an underground railway to reduce traffic congestion on the roads. Which combination would represent an external cost and an external benefit of the use of this railway? external cost external benefit A compensation is paid to businesses foreign tourists pay to use the railway displaced by construction work B nearby residents suffer there are fewer admissions to noise from passing trains hospital as air quality improves C overtime payments are made to workers productivity increases as employees to finish building the railway on time arrive at work more punctually D reduced traffic means there are motorists spend less on fuel fewer road improvements needed

1 marks

Answer: B

This question in 9708/33 Oct/Nov 2022

3 The diagram shows the marginal private benefit (MPB), the marginal private cost (MPC) and the marginal social cost (MSC) of a firm producing chemicals. In a free market, price is at P1. price MSC MPC P2 P1 MPB O Q1 Q2 Q3 Q4 quantity Which quantity measures the overproduction of chemicals resulting in the negative production externality? A Q1,Q2 B Q1,Q3 C Q2,Q3 D Q3,Q4

1 marks

Answer: C

This question in 9708/33 Oct/Nov 2022

14 The table shows a firm that has four possible methods of production. Each method has a different cost and causes a different amount of pollution. The government decides that polluting firms must buy pollution permits that cost $90 each. Each permit allows the firm to emit 1 tonne of pollution. No pollution can be emitted without a permit. Which method of production has least total cost? cost of production pollution caused ($ per day) (tonnes per day) A 320 3 B 380 2 C 480 1 D 700 0

1 marks

Answer: B

This question in 9708/33 Oct/Nov 2022

18 Which government measure is most likely to encourage faster and more sustainable economic growth in a country? A subsidies to firms using recycled materials in production B grants for the exploration and exploitation of new oil deposits C increased spending on environmental education in schools D tougher legislative controls on emissions of air and water pollution

1 marks

Answer: A

This question in 9708/33 Oct/Nov 2022

7 The world’s largest pharmaceutical companies developed and distributed an effective vaccine to combat a dangerous virus. What can be associated with this vaccine programme? A demerit good and negative production externality B imperfect competition and positive consumption externality C perfect competition and negative consumption externality D public good and negative production externality

1 marks

Answer: B

This question in 9708/32 Feb/March 2023

9 The result of a cost-benefit analysis of a proposed government road-building project is that there will be a positive net social benefit of $50 million. Why might the government not proceed with the project? A The project would not be profitable for a private firm. B The project would cause negative externalities. C There is limited capital available for government projects. D There would be more who lost than gained.

1 marks

Answer: C

This question in 9708/32 Feb/March 2023

9 What is an example of an external cost? A distribution costs B energy costs C labour costs D road congestion costs

1 marks

Answer: D

This question in 9708/31 May/June 2023

10 The diagram shows the demand for and supply of a good and the marginal social costs (MSC) for that good. MSC costs, revenue S y x z w D O Q output Assuming there are no external benefits, which area measures the net social benefit at output OQ? A x B x – y C x + y D x – y – z

1 marks

Answer: B

This question in 9708/31 May/June 2023

6 Which statement is correct? A External benefit minus private benefit equals social benefit. B Private benefit minus external benefit equals social benefit. C Social benefit minus external benefit equals private benefit. D Social benefit plus private benefit equals external benefit.

1 marks

Answer: C

This question in 9708/32 May/June 2023

8 Which action would produce a positive externality of production? A A child is vaccinated against measles. B A consumer donates products to a local food bank. C A firm rebuilds a local road when constructing its new factory. D A government pays a subsidy to firms producing cars.

1 marks

Answer: C

This question in 9708/32 May/June 2023

12 A government hopes to build an athletics stadium to hold the World Games. The stadium would have high private and external costs, but it would increase national pride. Why would it be difficult to use cost-benefit analysis to decide whether to build the stadium? A The materials needed to build the stadium will need to be imported. B The external costs of clearing land for building will outweigh the private costs. C The stadium will not be used much for athletics after the World Games. D The valuation of national pride will be complex to assess.

1 marks

Answer: D

This question in 9708/32 May/June 2023

9 What is an example of an external cost? A distribution costs B energy costs C labour costs D road congestion costs

1 marks

Answer: D

This question in 9708/33 May/June 2023

10 The diagram shows the demand for and supply of a good and the marginal social costs (MSC) for that good. MSC costs, revenue S y x z w D O Q output Assuming there are no external benefits, which area measures the net social benefit at output OQ? A x B x – y C x + y D x – y – z

1 marks

Answer: B

This question in 9708/33 May/June 2023

9 A city council is considering building a passenger terminal at its port so that the city can benefit from large cruise ships that could then dock there. It undertakes a cost–benefit analysis. What would be included as an external cost in the city council’s cost–benefit analysis? A the cost of a ticket for a passenger to travel on a cruise ship B the cost of fuel to operate the cruise ships C the costs paid by cruise ships when they dock at the port D the cost to a fishing fleet of relocating to another port

1 marks

Answer: D

This question in 9708/31 Oct/Nov 2023

10 Some multinational oil companies extracting oil in developing countries are now required to repair the damage they do to the environment. What best describes the total costs incurred by the oil companies in such circumstances? A external costs B private costs plus external costs C social costs plus external costs D social costs plus private costs

1 marks

Answer: B

This question in 9708/31 Oct/Nov 2023

8 A traffic study concluded that there would be significant benefits if 10% of car drivers switched to using motorcycles during peak traffic times. Which benefit of this change would be considered a private benefit? A faster journeys for those who continued to go by car B faster journeys for those who switched to motorcycles C increased safety for cyclists D reduced levels of air pollution for pedestrians

1 marks

Answer: B

This question in 9708/33 Oct/Nov 2023

9 Which conditions are most likely to reduce the accuracy of cost-benefit analysis in decision making? proportion of external % of total costs and costs and benefits to total benefits that are in total costs and benefits the future A high high B high low C low high D low low

1 marks

Answer: A

This question in 9708/33 Oct/Nov 2023

3 A medical team provides vaccinations for children to prevent an outbreak of an infectious disease. Why would this be described as a positive externality? A Additional benefit might be gained as the disease no longer spreads. B Any kind of medical help will improve the condition of the children. C No action would be taken unless the medical team intervened. D The social benefits of vaccination are less than the social costs.

1 marks

Answer: A

This question in 9708/31 May/June 2024

6 An economic activity definitely creates a net social benefit when the value of social benefit minus A private benefit is zero. B private benefit is negative. C social cost is positive. D social cost is negative.

1 marks

Answer: C

This question in 9708/31 May/June 2024

3 A medical team provides vaccinations for children to prevent an outbreak of an infectious disease. Why would this be described as a positive externality? A Additional benefit might be gained as the disease no longer spreads. B Any kind of medical help will improve the condition of the children. C No action would be taken unless the medical team intervened. D The social benefits of vaccination are less than the social costs.

1 marks

Answer: A

This question in 9708/33 May/June 2024

6 An economic activity definitely creates a net social benefit when the value of social benefit minus A private benefit is zero. B private benefit is negative. C social cost is positive. D social cost is negative.

1 marks

Answer: C

This question in 9708/33 May/June 2024

6 The diagram shows the private and social costs and benefits of production in a free market that result in market failure. MSC costs, benefits MPC MSB MPB O K L M N output Which change in output would be necessary to overcome this market failure? A from K to M B from M to N C from M to L D from N to L

1 marks

Answer: C

This question in 9708/32 Feb/March 2025

10 What is not a reason for imposing a tax on producers based on the amount of pollution caused in the production process? A Firms have a financial incentive to reduce pollution. B It is relatively hard to administer and monitor this tax scheme. C Some firms cause less pollution than others. D Taxes on pollution reduce negative production externalities.

1 marks

Answer: B

This question in 9708/32 Feb/March 2025