Economics (AS & A Level) · Oct / Nov 2021 · Paper 32 · Question 3
9708Private costs and benefits, externalities and social costs and benefits
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. private costs 1.0; social costs 1.7; private benefits 0.5; external benefits 1.8 ($ billion) What should the government decide and why?
- Ado not proceed; total costs exceed external benefits
- Bdo not proceed; total costs exceed total benefits
- Cproceed; private costs exceed private benefits
- Dproceed; social benefits exceed social costs
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Correct answer: D. proceed; social benefits exceed social costs
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