Economics Multiple Choice Question – 16 July 2019

In which situation is a market allocatively efficient?

Select ONE answer:

1. It is when consumer surplus equals producer surplus.
2. It is when marginal social benefit equals marginal social cost.
3. It is when there are both positive consumption externalities and positive production externalities.
4. It is when the value of external benefits exceeds the value of external costs.

Show your workings to arrive at your answer, and explain and justify your reasons:……………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………

This multiple choice question is suitable for Economics KS5 classes.

The answer is 2

1. Allocative efficiency would be achieved where consumer surplus plus producer surplus is maximised.
2. Correct: Marginal social benefit equalling marginal social cost ensures that the value society places on the last unit produced equals the cost of that unit.
3. The existence of externalities is likely to mean that market failure will occur.
4. To ascertain whether allocative efficiency is being achieved, it is not sufficient just to compare external benefits and costs – social benefits and costs needed to be compared.

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