Topic Questions (MCQ – EASY): Private costs and benefits, externalities and social costs and benefits – 3auk

Which statement regarding a product that has external costs must be true?

The use of the product has beneficial effects on third parties.

The private costs of producing the product are greater than the social costs.

The production of the product has harmful effects on third parties.

The social costs of producing the product are greater than the social benefits.

Which of the following options best describes the meaning of net social benefit in cost-benefit analysis?

The sum of private benefit and social benefit.

The difference between social benefit and private benefit.

The difference between social benefit and private cost.

The difference between social benefit and social cost.

What can be inferred about a project that has a social cost of $100 million, a private cost of $40 million, and an external benefit of $20 million, and has a net social value of zero?

The external cost exceeds the external benefit.

The private cost exceeds the external cost.

The private cost exceeds the private benefit.

The social cost exceeds the social benefit.

How should a government decide which high-speed route to choose when considering improving rail links in its country, given the benefits and costs of each route shown below?

	private benefits $bn	external benefits $bn	private costs $bn	external costs $bn
A	15	20	5.4	0.6
B	16	20	4.6	1.4
C	18	12	2	1
D	20	16	6	2

A

B

C

D

The graph illustrates the marginal social benefit (MSB) and marginal social cost (MSC) for a production process.

What is the optimal level of output that maximizes social welfare?

At 0 units because MSC is zero.

Between 0 and 20 units because MSB is greater than MSC.

At 20 units because MSB equals MSC.

At 40 units because total social benefits are maximised when MSB is 0.