# Economics AQA MSC and MSB diagramsWatch

#1
These diagrams come up every year on unit 1 and im confused i know what they are and what they mean i get confused when applying it to a diagram please could someone explain .
0
4 years ago
#2
(Original post by nayana71)
These diagrams come up every year on unit 1 and im confused i know what they are and what they mean i get confused when applying it to a diagram please could someone explain .

Positive Externalities
This occurs when the consumption or production of a good causes a benefit
to a third party. So for example:
• When you consume education you get a private benefit. But there are
also benefits to the rest of society, e.g. you are able to educate other
people and therefore they benefit as a result
• Therefore with positive externalities the benefit to society is greater
than your personal benefit. Social Benefit > Private Benefit
You would draw the positive externalities diagram to illustrate the above.

In a free market consumption will be at Q1 because private benefit =private cost.
• However this is socially inefficient because Social Cost < Social Benefit.
Therefore there is under consumption of the positive externality.
• Social Efficiency would occur at Q se where Social Cost = Social
Benefit.
• For example: In the real world without govt intervention there would be
too little education and public transport.

Negative Externalities:
• Negative externalities occur when the consumption or production of a
good causes a harmful effect to a third party.
• For example, if you play loud music at night your neighbour may not be
able to sleep.
• If you produce chemicals but cause pollution then local fishermen will
not be able to catch fish. This loss of income will be the negative
externality.
• Therefore with a negative externality, Social Cost > Private Cost
You would draw the positive externalities diagram to illustrate the above.

In a free market people ignore the external costs to others therefore
output will be Q1 where D=S.
• This is socially inefficient because at Q1: Social Cost > Social Benefit
• Social Efficiency occurs at Q se where Social Cost = Social Benefit
• E.g. In a free market there would be over consumption of cars and
cigarettes.
1
#3
(Original post by TheHonestMisty)
Positive Externalities
This occurs when the consumption or production of a good causes a benefit
to a third party. So for example:
• When you consume education you get a private benefit. But there are
also benefits to the rest of society, e.g. you are able to educate other
people and therefore they benefit as a result
• Therefore with positive externalities the benefit to society is greater
than your personal benefit. Social Benefit > Private Benefit
You would draw the positive externalities diagram to illustrate the above.

In a free market consumption will be at Q1 because private benefit =private cost.
• However this is socially inefficient because Social Cost < Social Benefit.
Therefore there is under consumption of the positive externality.
• Social Efficiency would occur at Q se where Social Cost = Social
Benefit.
• For example: In the real world without govt intervention there would be
too little education and public transport.

Negative Externalities:
• Negative externalities occur when the consumption or production of a
good causes a harmful effect to a third party.
• For example, if you play loud music at night your neighbour may not be
able to sleep.
• If you produce chemicals but cause pollution then local fishermen will
not be able to catch fish. This loss of income will be the negative
externality.
• Therefore with a negative externality, Social Cost > Private Cost
You would draw the positive externalities diagram to illustrate the above.

In a free market people ignore the external costs to others therefore
output will be Q1 where D=S.
• This is socially inefficient because at Q1: Social Cost > Social Benefit
• Social Efficiency occurs at Q se where Social Cost = Social Benefit
• E.g. In a free market there would be over consumption of cars and
cigarettes.

Thank you very much!
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