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    So for positive externalities in consumption/production:

    In the free market, consumption/production will be at Qp because MPB=MPC. However, this is socially inefficient because MSB>MPB. Therefore there is under consumption/production of the positive externality as market fails to meet quantity demanded. Social efficiency would occur at Qs where MSC=MSB.

    And for negative externalities in consumption/production:

    In the free market people ignore the negative externalities to others therefore output will be at Qp where MPB=MPC. This is socially inefficient because at Qp: MSC>MSB. Social efficiency occurs at Qs where MSC=MSB. There will be over consumption/production if market fails to meet quantity demanded


    Posted from TSR Mobile
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    That is correct. In both cases the market fails to meet the socially optimal allocation of resources, hence there is market failure.
    Dr Mark Potts
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    (Original post by TSRforum)
    So for positive externalities in consumption/production:

    In the free market, consumption/production will be at Qp because MPB=MPC. However, this is socially inefficient because MSB>MPB. Therefore there is under consumption/production of the positive externality as market fails to meet quantity demanded. Social efficiency would occur at Qs where MSC=MSB.

    And for negative externalities in consumption/production:

    In the free market people ignore the negative externalities to others therefore output will be at Qp where MPB=MPC. This is socially inefficient because at Qp: MSC>MSB. Social efficiency occurs at Qs where MSC=MSB. There will be over consumption/production if market fails to meet quantity demanded


    Posted from TSR Mobile
    You need to distinguish between overconsumption and overproduction depending on the examination board. MSB>MPB refers to underconsumption of positive externalities and MSC<MPC refers to underproduction of positive externalities.
    For negative externalities in production MSC>MPC and for negative externalities in consumption MSB<MPB.
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    (Original post by keynes24)
    You need to distinguish between overconsumption and overproduction depending on the examination board. MSB>MPB refers to underconsumption of positive externalities and MSC<MPC refers to underproduction of positive externalities.
    For negative externalities in production MSC>MPC and for negative externalities in consumption MSB<MPB.
    I am with AQA, also when I refer to merit/de-merit goods do I need to add p1 and p2 onto c+b axis on the over production and under production diagrams? Or do I draw a separate s&d diagram showing how to reduce/increase consumption with a tax/subsidy?


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    (Original post by TSRforum)
    I am with AQA, also when I refer to merit/de-merit goods do I need to add p1 and p2 onto c+b axis on the over production and under production diagrams? Or do I draw a separate s&d diagram showing how to reduce/increase consumption with a tax/subsidy?


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    Is this the new specification?
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    (Original post by TSRforum)
    I am with AQA, also when I refer to merit/de-merit goods do I need to add p1 and p2 onto c+b axis on the over production and under production diagrams? Or do I draw a separate s&d diagram showing how to reduce/increase consumption with a tax/subsidy?


    Posted from TSR Mobile
    I would definitely add P1 and P2 onto the cost-benefit axis.

    To show the tax and subsidy you can either show the tax/subsidy on the externality diagram... or draw a new Supply & Demand diagram.

    Either will get you full marks - let me know if you'd like me to sketch these out for you.

    Very important: make sure you label the under/over-consumption/production on the quantitiy axis! That will lose you a mark if you don't.
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    (Original post by keynes24)
    Is this the new specification?
    Old spec


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    Hi I'm just a little confused as to what I'd put in a public goods question...the same with negative and positive externalities. Please help if you can
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    (Original post by tanjimahaque)
    Hi I'm just a little confused as to what I'd put in a public goods question...the same with negative and positive externalities. Please help if you can
    What you write related to public goods depends on what the question is, examination board, number of marks, context of the question .
 
 
 
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