Private costs and benefits, externalities and social costs and benefits
7.4What the syllabus asks of you
- definition and calculation of social costs (SC) as the sum of private costs (PC) and external costs (EC), including marginal social costs (MSC), marginal private costs (MPC) and marginal external costs (MEC)
- definition and calculation of social benefits (SB) as the sum of private benefits (PB) and external benefits (EB), including marginal social benefits (MSB), marginal private benefits (MPB) and marginal external benefits (MEB)
- definition of positive externality and negative externality
- positive and negative externalities of both consumption and production
- deadweight welfare losses arising from positive and negative externalities
- asymmetric information and moral hazard
- use of costs and benefits in analysing decisions (knowledge of net present value is not required)
Drill this topic
Every question on Private costs and benefits, externalities and social costs and benefits, untimed, marked as you go.
Make a worksheet
Choose the years and how many questions, then print it with the answers on separate pages.
63 questions
1May / June 2026 · Paper 31 · Q1Show mark scheme →
Athe creation of monopoly power
Bthe presence of a negative externality
Cthe presence of a positive externality
Dthe presence of non-excludability
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2May / June 2026 · Paper 31 · Q7Show mark scheme →
Awhen the marginal external cost = the marginal external benefit
Bwhen the marginal external cost > the marginal external benefit
Cwhen the marginal external cost < the marginal external benefit
Dwhen the marginal private benefit = the marginal social benefit
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3May / June 2026 · Paper 32 · Q4Show mark scheme →
A
B
C
D
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4May / June 2026 · Paper 32 · Q11Show mark scheme →
AIt will internalise the external benefit.
BIt will internalise the external cost.
CIt will internalise the private benefit.
DIt will internalise the private cost.
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5May / June 2026 · Paper 33 · Q1Show mark scheme →
Athe creation of monopoly power
Bthe presence of a negative externality
Cthe presence of a positive externality
Dthe presence of non-excludability
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6May / June 2026 · Paper 33 · Q7Show mark scheme →
Awhen the marginal external cost = the marginal external benefit
Bwhen the marginal external cost > the marginal external benefit
Cwhen the marginal external cost < the marginal external benefit
Dwhen the marginal private benefit = the marginal social benefit
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7Oct / Nov 2025 · Paper 31 · Q6Show mark scheme →
Aoverproduction — VWX
Boverproduction — XYV
Cunderproduction — VWX
Dunderproduction — XYV
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8Oct / Nov 2025 · Paper 33 · Q3Show mark scheme →
Aa minimum price
Basymmetric information
Cnon-excludability
Dproductive inefficiency
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9Oct / Nov 2025 · Paper 34 · Q4Show mark scheme →
Aposition of economic welfare X; production externality negative; consumption externality negative
Bposition of economic welfare Y; production externality positive; consumption externality negative
Cposition of economic welfare X; production externality negative; consumption externality positive
Dposition of economic welfare Y; production externality positive; consumption externality positive
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10May / June 2025 · Paper 31 · Q4Show mark scheme →
AThe consumer underconsumes the product by Q1Q2.
BThe consumer underconsumes the product by Q1Q3.
CThe consumer overconsumes the product by Q1Q3.
DThe consumer overconsumes the product by Q1Q4.
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11May / June 2025 · Paper 32 · Q4Show mark scheme →
AWhen a consumer does not have full information about a product.
BWhen a person undertakes an activity that causes harm to another person.
CWhen a person undertakes a risky activity, knowing another person bears the risk.
DWhen the seller of a product has more information than the buyer.
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12May / June 2025 · Paper 33 · Q4Show mark scheme →
AThe consumer underconsumes the product by Q1Q2.
BThe consumer underconsumes the product by Q1Q3.
CThe consumer overconsumes the product by Q1Q3.
DThe consumer overconsumes the product by Q1Q4.
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13May / June 2025 · Paper 34 · Q4Show mark scheme →
APrivate benefits are greater than private costs.
BSocial benefits are greater than social costs.
CSocial benefits are greater than external costs.
DExternal costs are greater than external benefits.
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14Feb / March 2025 · Paper 32 · Q6Show mark scheme →
Afrom K to M
Bfrom M to N
Cfrom M to L
Dfrom N to L
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15Oct / Nov 2024 · Paper 32 · Q4Show mark scheme →
Adecreased pressure on the provision of health care
Bexpenses incurred on surveillance of motorbike riders to ensure compliance
Cincreased life expectancy of motorbike riders
Dincreased profits of helmet manufacturers
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16Oct / Nov 2024 · Paper 32 · Q8Show mark scheme →
Aa decrease in consumption and an increase in price
Ba decrease in production and no change in price
Can increase in consumption and a decrease in production
Dan increase in price and no change in production
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17May / June 2024 · Paper 31 · Q3Show mark scheme →
AAdditional benefit might be gained as the disease no longer spreads.
BAny kind of medical help will improve the condition of the children.
CNo action would be taken unless the medical team intervened.
DThe social benefits of vaccination are less than the social costs.
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18May / June 2024 · Paper 31 · Q6Show mark scheme →
Aprivate benefit is zero.
Bprivate benefit is negative.
Csocial cost is positive.
Dsocial cost is negative.
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19May / June 2024 · Paper 32 · Q3Show mark scheme →
Aprivate benefits falls; external benefits falls; private costs no change; external costs no change
Bprivate benefits no change; external benefits increases; private costs falls; external costs no change
Cprivate benefits no change; external benefits increases; private costs falls; external costs falls
Dprivate benefits increases; external benefits increases; private costs no change; external costs falls
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20May / June 2024 · Paper 32 · Q7Show mark scheme →
ARTS
BRUS
CTUS
DYTUS
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21May / June 2024 · Paper 33 · Q3Show mark scheme →
AAdditional benefit might be gained as the disease no longer spreads.
BAny kind of medical help will improve the condition of the children.
CNo action would be taken unless the medical team intervened.
DThe social benefits of vaccination are less than the social costs.
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22May / June 2024 · Paper 33 · Q6Show mark scheme →
Aprivate benefit is zero.
Bprivate benefit is negative.
Csocial cost is positive.
Dsocial cost is negative.
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23Feb / March 2024 · Paper 32 · Q3Show mark scheme →
A$12 000
B$32 000
C$80 000
D$380 000
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24Oct / Nov 2023 · Paper 31 · Q9Show mark scheme →
Athe cost of a ticket for a passenger to travel on a cruise ship
Bthe cost of fuel to operate the cruise ships
Cthe costs paid by cruise ships when they dock at the port
Dthe cost to a fishing fleet of relocating to another port
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25Oct / Nov 2023 · Paper 31 · Q10Show mark scheme →
Aexternal costs
Bprivate costs plus external costs
Csocial costs plus external costs
Dsocial costs plus private costs
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26Oct / Nov 2023 · Paper 32 · Q3Show mark scheme →
Acar manufacturers will automatically bear any external costs
Bmarket failure will be resolved when private costs equal external costs
Cmost people will decide to use buses rather than cars
Dsome form of government intervention to improve economic efficiency
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27Oct / Nov 2023 · Paper 32 · Q8Show mark scheme →
APeople with a higher risk of unemployment are more likely to undertake training.
BPeople with free dental care are less likely to take care of their teeth with good oral hygiene.
CPeople with insurance against car theft are more likely to park their car in high crime areas.
DPeople with unemployment benefits are less likely to undertake retraining if they become unemployed.
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28Oct / Nov 2023 · Paper 32 · Q9Show mark scheme →
Aa downward shift of both the MPC and the MEC curves
Ba downward shift of the MPC curve and a movement left along the MEC curve
Ca movement left along both the MPC and the MEC curves
Da movement left along the MPC curve and a downward shift of the MEC curve
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29Oct / Nov 2023 · Paper 33 · Q8Show mark scheme →
Afaster journeys for those who continued to go by car
Bfaster journeys for those who switched to motorcycles
Cincreased safety for cyclists
Dreduced levels of air pollution for pedestrians
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30Oct / Nov 2023 · Paper 33 · Q9Show mark scheme →
Ahigh / high
Bhigh / low
Clow / high
Dlow / low
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31May / June 2023 · Paper 31 · Q9Show mark scheme →
Adistribution costs
Benergy costs
Clabour costs
Droad congestion costs
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32May / June 2023 · Paper 31 · Q10Show mark scheme →
Ax
Bx – y
Cx + y
Dx – y – z
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33May / June 2023 · Paper 32 · Q1Show mark scheme →
Athe existence of asymmetric information
Bthe existence of dynamic efficiency
Cthe existence of positive externalities
Dthe existence of social benefits
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34May / June 2023 · Paper 32 · Q6Show mark scheme →
AExternal benefit minus private benefit equals social benefit.
BPrivate benefit minus external benefit equals social benefit.
CSocial benefit minus external benefit equals private benefit.
DSocial benefit plus private benefit equals external benefit.
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35May / June 2023 · Paper 32 · Q7Show mark scheme →
Acharging the same insurance premium to all people in the same age group
Bdesigning insurance contracts so that the insurance company and client share any loss
Cgiving unconditional financial support to banks to protect jobs
Dguaranteeing jobs for bank managers to provide a sense of security
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36May / June 2023 · Paper 32 · Q8Show mark scheme →
AA child is vaccinated against measles.
BA consumer donates products to a local food bank.
CA firm rebuilds a local road when constructing its new factory.
DA government pays a subsidy to firms producing cars.
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37May / June 2023 · Paper 32 · Q12Show mark scheme →
AThe materials needed to build the stadium will need to be imported.
BThe external costs of clearing land for building will outweigh the private costs.
CThe stadium will not be used much for athletics after the World Games.
DThe valuation of national pride will be complex to assess.
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38May / June 2023 · Paper 33 · Q9Show mark scheme →
Adistribution costs
Benergy costs
Clabour costs
Droad congestion costs
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39May / June 2023 · Paper 33 · Q10Show mark scheme →
Ax
Bx – y
Cx + y
Dx – y – z
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40Oct / Nov 2022 · Paper 31 · Q2Show mark scheme →
AA
BB
CC
DD
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41Oct / Nov 2022 · Paper 31 · Q3Show mark scheme →
Athe additional noise pollution suffered by residents local to airport X
Bthe financial loss suffered by airlines operating at airport Y
Cthe increase in profits of the firm operating airport X
Dthe monetary cost of the construction to expand airport X
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42Oct / Nov 2022 · Paper 31 · Q15Show mark scheme →
Aa complete ban on flights removing all private and external costs
Bgreater deregulation of the global airline industry
Cpublishing information to highlight the negative effects of flying on the environment
Dthe payment of a subsidy per passenger equal to the difference between the private and social benefit
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43Oct / Nov 2022 · Paper 32 · Q2Show mark scheme →
AEG
BEF
CFG
DHI
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44Oct / Nov 2022 · Paper 32 · Q3Show mark scheme →
Ayes / no / no / yes
Byes / yes / no / no
Cyes / yes / yes / yes
Dno / no / yes / yes
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45Oct / Nov 2022 · Paper 32 · Q13Show mark scheme →
AThe fall in the marginal social benefit is greater than the fall in the marginal social cost.
BThe fall in the marginal external cost is greater than the fall in the marginal external benefit.
CThe fall in the total social benefit is greater than the fall in the total social cost.
DThe fall in the total social cost is greater than the fall in the total social benefit.
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46Oct / Nov 2022 · Paper 33 · Q2Show mark scheme →
Acompensation is paid to businesses displaced by construction work | foreign tourists pay to use the railway
Bnearby residents suffer noise from passing trains | there are fewer admissions to hospital as air quality improves
Covertime payments are made to workers to finish building the railway on time | productivity increases as employees arrive at work more punctually
Dreduced traffic means there are fewer road improvements needed | motorists spend less on fuel
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47Oct / Nov 2022 · Paper 33 · Q3Show mark scheme →
AQ1,Q2
BQ1,Q3
CQ2,Q3
DQ3,Q4
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48May / June 2022 · Paper 31 · Q3Show mark scheme →
Aexternal benefit = external cost
Bexternal benefit > external cost
Cexternal benefit < external cost
Dexternal benefit > private benefit
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49May / June 2022 · Paper 32 · Q1Show mark scheme →
Athe distributors who sell the electricity
Bthe electricity company that produces the electricity
Cthe government that subsidises the production of electricity
Dthe people living in the area where the electricity is generated
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50May / June 2022 · Paper 33 · Q3Show mark scheme →
Aexternal benefit = external cost
Bexternal benefit > external cost
Cexternal benefit < external cost
Dexternal benefit > private benefit
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51Feb / March 2022 · Paper 32 · Q2Show mark scheme →
Athe amount that the government spends on social security benefits
Bthe benefit gained by society from total government spending
Cthe benefit to third parties from household consumption of a good
Dthe private and external benefits from household consumption of a good
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52Oct / Nov 2021 · Paper 31 · Q2Show mark scheme →
Athe non-provision of public goods by the market
Bindirect taxation that fails to internalise the external cost
Cmonopoly power leading to reduced output and a higher price
Dthe production of a good that has a harmful effect on a third party
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53Oct / Nov 2021 · Paper 32 · Q3Show mark scheme →
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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54Oct / Nov 2021 · Paper 33 · Q3Show mark scheme →
Athe cost of building the railway line: EC; the increased noise levels: PC
Bthe cost of building the railway line: EC; the increased noise levels: EC
Cthe cost of building the railway line: PC; the increased noise levels: EC
Dthe cost of building the railway line: PC; the increased noise levels: PC
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55May / June 2021 · Paper 31 · Q1Show mark scheme →
Abetter dental hygiene from chewing gum
Bcosts of the ingredients in chewing gum
Cdiscarded chewing gum on pavements
Dsmells from chewing gum factories
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56May / June 2021 · Paper 31 · Q3Show mark scheme →
Aconstruction workers who built the site
Bfactory workers who returned to their jobs after the games
Cresidents who were rehoused far away from Beijing
Dthose who live in the former athletes' accommodation
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57May / June 2021 · Paper 31 · Q14Show mark scheme →
AOutput must be above the allocative efficient level.
BOutput must be at the allocative efficient level.
COutput must be below the allocative efficient level.
DOutput can be above or below the allocative efficient level.
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58May / June 2021 · Paper 32 · Q3Show mark scheme →
Aprivate costs 20, private benefits 25, external benefits 5
Bprivate costs 25, private benefits 30, external benefits 10
Cprivate costs 20, private benefits 25, external benefits 10
Dprivate costs 30, private benefits 35, external benefits 10
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59May / June 2021 · Paper 33 · Q1Show mark scheme →
Abetter dental hygiene from chewing gum
Bcosts of the ingredients in chewing gum
Cdiscarded chewing gum on pavements
Dsmells from chewing gum factories
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60May / June 2021 · Paper 33 · Q3Show mark scheme →
Aconstruction workers who built the site
Bfactory workers who returned to their jobs after the games
Cresidents who were rehoused far away from Beijing
Dthose who live in the former athletes' accommodation
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61May / June 2021 · Paper 33 · Q14Show mark scheme →
AOutput must be above the allocative efficient level.
BOutput must be at the allocative efficient level.
COutput must be below the allocative efficient level.
DOutput can be above or below the allocative efficient level.
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62Feb / March 2021 · Paper 32 · Q2Show mark scheme →
AThere is overconsumption and overpricing.
BThere is overproduction and under-pricing.
CThere is underconsumption and under-pricing.
DThere is underproduction and overpricing.
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63Feb / March 2021 · Paper 32 · Q3Show mark scheme →
A30
B40
C50
D90
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