MCQ Questions:

1. What could prevent a market economy achieving allocative efficiency?
A. A disagreement among consumers over resource allocation
B. Inequalities in the distribution of income and wealth
C. An inability to produce free goods
D. An inability to produce public goods

2. Which is a correct statement about efficiency?
A. Allocative efficiency occurs when marginal revenue equals marginal cost.
B. An economy is productively efficient when it is producing at a point on its production possibility curve.
C. An economy will improve its allocative efficiency when its production possibility curve moves outward.
D. Productive efficiency occurs when the prices of goods equal their marginal cost of production.

3. Which is not a policy designed to correct market failure?
A. Competition policy
B. Free inoculation against infectious diseases
C. Minimum wage policy
D. Regulations to limit river pollution

4. What would economists agree should be the aim of any health care system?
A. To meet all the health care demands of the population
B. To provide every patient with the latest and best available treatment
C. To provide free medical treatment
D. To secure the maximum health gain from the resources available

5. 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.

6. What will happen if a firm is subsidized 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.

7. 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

8. Which government policy would not be classified as regulation?
A. Bans on heroin and cocaine consumption
B. Compulsory wearing of seat belts in cars and coaches
C. Licenses for the extraction of water from lakes and rivers
D. Taxation of cigarettes and tobacco products

9. 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

10. What is the purpose of trying to achieve economic efficiency?
A. To achieve full employment
B. To achieve the cheapest possible price for products
C. To ensure resources are not wasted
D. To use as many resources as possible

11. 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

12. Which policy is not designed to correct a market failure?
A. Government provision of health care
B. Removing import quotas
C. Price controls on large firms
D. Regulations to limit smoke pollution

13. How is social cost calculated?
A. External cost minus external benefit
B. External cost minus private cost
C. External cost plus private cost
D. Social cost minus social benefit

14. 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.

MCQ Answers:

1. D. An inability to produce public goods
2. B. An economy is productively efficient when it is producing at a point on its production possibility curve.
3. C. Minimum wage policy
4. D. To secure the maximum health gain from the resources available
5. C. Output of the good is below the socially optimum level.
6. D. Resource allocation will be improved.
7. D. The presence of externalities
8. D. Taxation of cigarettes and tobacco products
9. D. Subsidies for agricultural producers
10. C. To ensure resources are not wasted
11. B. When (private benefit + external benefit) - (private cost + external cost) is positive
12. B. Removing import quotas
13. C. External cost plus private cost
14. B. Social benefits are greater than social costs.