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

The table displays the marginal costs of production and marginal benefits of consumption for a certain good

marginal private cost ($): 100
marginal social cost ($): 150
marginal private benefit ($): 150
marginal social benefit ($): 200
What does this information indicate?

a negative consumption externality

a positive production externality

Pareto optimal allocation of resources

Inefficient allocation of resources

When cost-benefit analysis is applied correctly, what is the expected outcome?

The aim is to minimize social costs and maximize social benefits.

The goal is to ensure that social benefits exceed social costs.

The objective is to equate marginal private benefits with marginal social benefits.

The objective is to equate marginal social benefits with marginal social costs.

The diagram illustrates the private and social marginal costs and benefits associated with varying levels of traffic.

When a congestion tax is imposed, the MPC curve shifts upward to MPC + tax.
What does the shaded region in the diagram represent in terms of the reduction in deadweight loss?

a + b only

a + b + c

b only

c only

A government approved a private airport-building scheme based on its social benefits. The calculations showed that the private costs were $600 million, private benefits were $700 million, and external costs were $200 million.

What can be inferred about the external benefits of the scheme?

The external benefits were equal to the private benefits.

The external benefits are over $100 million.

The external benefits are larger than the external costs.

There were no external benefits.

During the production of a good, a constant marginal external cost is incurred regardless of the level of output.

Which value of price elasticity of demand for the good would result in the highest deadweight welfare loss due to the externality?

Smaller than one

Equal to one

Larger than one

Zero