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<title>DP Economics: Unit 2.8(1): Market failure – externalities</title>
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style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../35118/unit-2111-market-power-theory-of-production-and-costs-hl.html" title="Unit 2.11(1) Market power - Theory of production and costs (HL)">Unit 2.11(1) Market power - Theory of production and costs (HL)</a></li><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../35125/unit-2112-market-power-perfect-competitionhl.html" title="Unit 2.11(2) Market power - Perfect competition(HL)">Unit 2.11(2) Market power - Perfect competition(HL)</a></li><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../35147/unit-2113-market-power-monopolyhl.html" title="Unit 2.11(3) Market power - Monopoly(HL)">Unit 2.11(3) Market power - Monopoly(HL)</a></li><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../35151/unit-2114-market-power-monopolistic-competitionhl.html" title="Unit 2.11(4) Market power - Monopolistic competition(HL)">Unit 2.11(4) Market power - Monopolistic competition(HL)</a></li><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../35153/unit-2115-market-power-oligopolyhl.html" title="Unit 2.11(5) Market power - Oligopoly(HL)">Unit 2.11(5) Market power - Oligopoly(HL)</a></li><li class=" parent" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../41603/economics-real-world-examples-and-extension-material-.html" title="Economics real world examples and extension material ">Economics real world examples and extension material </a></li><ul class="level-3 "><li class="" style="padding-left: 42px"><i class="expander fa fa-caret-right "></i><a class="" href="../43378/opportunity-cost-and-production-possibility-curves.html" title="Opportunity cost and production possibility curves">Opportunity cost and production possibility curves</a></li><li class="" style="padding-left: 42px"><i class="expander fa fa-caret-right "></i><a class="" href="../42559/demand-theory.html" title="Demand theory">Demand theory</a></li><li class="" style="padding-left: 42px"><i class="expander fa fa-caret-right "></i><a class="" href="../41886/the-price-mechanism.html" title="The price mechanism">The price mechanism</a></li><li class="" style="padding-left: 42px"><i class="expander fa fa-caret-right "></i><a class="" href="../43188/market-demand-and-supply.html" title="Market demand and supply">Market demand and supply</a></li><li class="" style="padding-left: 42px"><i class="expander fa fa-caret-right "></i><a class="" href="../41705/demerit-goods.html" title="Demerit goods">Demerit goods</a></li><li class="" style="padding-left: 42px"><i class="expander fa fa-caret-right "></i><a class="" href="../42275/market-failure-and-climate-change.html" title="Market failure and climate change">Market failure and climate change</a></li><li class="" style="padding-left: 42px"><i class="expander fa fa-caret-right "></i><a class="" href="../42925/market-power.html" title="Market power">Market power</a></li><li class="" style="padding-left: 42px"><i class="expander fa fa-caret-right "></i><a class="" href="../42099/applying-game-theory.html" title="Applying game theory">Applying game theory</a></li></ul></ul><li class=" parent" style="padding-left: 14px"><i class="expander fa fa-caret-right "></i><a class="" href="../34407/chapter-3-macroeconomics.html" title="Chapter 3: Macroeconomics">Chapter 3: Macroeconomics</a></li><ul class="level-2 "><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../34355/unit-311-measuring-the-level-of-economic-activity.html" title="Unit 3.1(1): Measuring the level of economic activity">Unit 3.1(1): Measuring the level of economic activity</a></li><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../34432/unit-312-measuring-economic-development.html" title="Unit 3.1(2): Measuring Economic Development">Unit 3.1(2): Measuring Economic Development</a></li><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../34485/unit-321-variations-in-economic-activity-aggregate-demand-ad-.html" title="Unit 3.2(1): Variations in economic activity - aggregate demand (AD) ">Unit 3.2(1): Variations in economic activity - aggregate demand (AD) </a></li><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../34487/unit-322-variations-in-economic-activity-aggregate-supplyas.html" title="Unit 3.2(2): Variations in economic activity - aggregate supply(AS)">Unit 3.2(2): Variations in economic activity - aggregate supply(AS)</a></li><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../34758/unit-331-macroeconomic-objectives-economic-growth.html" title="Unit 3.3(1) Macroeconomic objectives: economic growth">Unit 3.3(1) Macroeconomic objectives: economic growth</a></li><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../34771/unit-332-macroeconomic-objectives-unemployment-.html" title="Unit 3.3(2) Macroeconomic objectives: unemployment ">Unit 3.3(2) Macroeconomic objectives: unemployment </a></li><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../34778/unit-333-macroeconomic-objectives-inflation-and-deflation--1.html" title="Unit 3.3(3) Macroeconomic objectives: inflation and deflation ">Unit 3.3(3) Macroeconomic objectives: inflation and deflation </a></li><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../34925/unit-341-economics-of-inequality-and-poverty-1.html" title="Unit 3.4(1) Economics of inequality and poverty">Unit 3.4(1) Economics of inequality and poverty</a></li><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../34946/unit-342-policies-to-improve-equality-equity-and-poverty.html" title="Unit 3.4(2) Policies to improve equality, equity and poverty">Unit 3.4(2) Policies to improve equality, equity and poverty</a></li><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../34993/unit-35-government-management-of-the-economy-monetary-policy-1.html" title="Unit 3.5 Government management of the economy – monetary policy">Unit 3.5 Government management of the economy – monetary policy</a></li><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../34962/unit-36-government-management-of-the-economy-fiscal-policy-1.html" title="Unit 3.6 Government management of the economy – fiscal policy">Unit 3.6 Government management of the economy – fiscal policy</a></li><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../35017/unit-371-market-based-supply-side-policies--1.html" title="Unit 3.7(1) Market based supply-side policies ">Unit 3.7(1) Market based supply-side policies </a></li><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../35018/unit-372-interventionist-supply-side-policies-.html" title="Unit 3.7(2) Interventionist supply-side policies ">Unit 3.7(2) Interventionist supply-side policies </a></li><li class=" parent" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../45803/economics-real-world-examples-and-extension-material--1.html" title="Economics real world examples and extension material ">Economics real world examples and extension material </a></li><ul class="level-3 "><li class="" style="padding-left: 42px"><i class="expander fa fa-caret-right "></i><a class="" href="../42639/measuring-economic-well-being-1.html" title="Measuring economic well-being">Measuring economic well-being</a></li><li class="" style="padding-left: 42px"><i class="expander fa fa-caret-right "></i><a class="" href="../43044/inflation.html" title="Inflation">Inflation</a></li><li class="" style="padding-left: 42px"><i class="expander fa fa-caret-right "></i><a class="" href="../42350/inequality.html" title="Inequality">Inequality</a></li><li class="" style="padding-left: 42px"><i class="expander fa fa-caret-right "></i><a class="" href="../41639/inequity-1.html" title="Inequity">Inequity</a></li></ul></ul><li class=" parent" style="padding-left: 14px"><i class="expander fa fa-caret-right "></i><a class="" href="../35414/chapter-4-the-global-economy.html" title="Chapter 4: The Global Economy">Chapter 4: The Global Economy</a></li><ul class="level-2 "><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../35346/unit-41-benefits-of-international-trade-1.html" title="Unit 4.1 Benefits of international trade">Unit 4.1 Benefits of international trade</a></li><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../35348/unit-4243-trade-protectionism-1.html" title="Unit 4.2/4.3 Trade protectionism">Unit 4.2/4.3 Trade protectionism</a></li><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../35407/unit-44-economic-integration-.html" title="Unit 4.4 Economic integration ">Unit 4.4 Economic integration </a></li><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../35409/unit-45-exchange-rates-1.html" title="Unit 4.5 Exchange rates">Unit 4.5 Exchange rates</a></li><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../35413/unit-46-balance-of-payments--1.html" title="Unit 4.6 Balance of payments ">Unit 4.6 Balance of payments </a></li><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../35675/unit-47-sustainable-development.html" title="Unit 4.7 Sustainable development">Unit 4.7 Sustainable development</a></li><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../35685/unit-48-measuring-development--1.html" title="Unit 4.8 Measuring development ">Unit 4.8 Measuring development </a></li><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../35687/unit-49-barriers-to-economic-development-1.html" title="Unit 4.9 Barriers to economic development">Unit 4.9 Barriers to economic development</a></li><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../35702/unit-410-economic-growth-and-economic-development-strategies.html" title="Unit 4.10: Economic growth and economic development strategies">Unit 4.10: Economic growth and economic development strategies</a></li><li class=" parent" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../45804/economics-real-world-examples-and-extension-material-.html" title="Economics real world examples and extension material ">Economics real world examples and extension material </a></li><ul class="level-3 "><li class="" style="padding-left: 42px"><i class="expander fa fa-caret-right "></i><a class="" href="../41927/foreign-currency-1.html" title="Foreign currency">Foreign currency</a></li><li class="" style="padding-left: 42px"><i class="expander fa fa-caret-right "></i><a class="" href="../43532/exchange-rates-1.html" title="Exchange rates">Exchange rates</a></li><li class="" style="padding-left: 42px"><i class="expander fa fa-caret-right "></i><a class="" href="../43804/balance-of-payments.html" title="Balance of payments">Balance of payments</a></li><li class="" style="padding-left: 42px"><i class="expander fa fa-caret-right "></i><a class="" href="../41796/economic-development-1.html" title="Economic development">Economic development</a></li></ul></ul></ul><li class=" parent std-toplevel" style="padding-left: 4px"><i class="expander fa fa-caret-right "></i><a class="" href="../20132/units-1-2-microeconomics.html" title="Units 1-2: Microeconomics">Units 1-2: Microeconomics</a></li><ul class="level-1 "><li class=" parent" style="padding-left: 14px"><i class="expander fa fa-caret-right "></i><a class="std-disabled" href="#" title="Unit 1: Introduction to economics">Unit 1: Introduction to economics</a></li><ul class="level-2 "><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../20091/introductory-activity-1.html" title="Introductory activity">Introductory activity</a></li><li class=" parent" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../20093/unit-11-scarcity-choice-and-opportunity-cost.html" title="Unit 1.1: Scarcity, choice and opportunity cost">Unit 1.1: Scarcity, choice and opportunity cost</a></li><ul class="level-3 "><li class="" style="padding-left: 42px"><i class="expander fa fa-caret-right "></i><a class="" href="../21647/factors-of-production-1.html" title="Factors of production">Factors of production</a></li></ul><li class=" parent" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../20114/economic-systems.html" title="Economic systems">Economic systems</a></li><ul class="level-3 "><li class="" style="padding-left: 42px"><i class="expander fa fa-caret-right "></i><a class="" href="../20134/public-and-private-sectors-1.html" title="Public and private sectors">Public and private sectors</a></li></ul><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../28055/unit-12-economics-as-a-social-science-1.html" title="Unit 1.2: Economics as a social science">Unit 1.2: Economics as a social science</a></li><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../29921/circular-flow-of-national-income.html" title="Circular flow of national income">Circular flow of national income</a></li><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../29829/unit-1-review-terms-1.html" title="Unit 1: Review terms">Unit 1: Review terms</a></li><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../41600/introduction-to-economics-crossword-1.html" title="Introduction to economics crossword">Introduction to economics crossword</a></li><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../4331/unit-1-multiple-choice-quiz.html" title="Unit 1: Multiple choice quiz">Unit 1: Multiple choice quiz</a></li></ul><li class=" parent" style="padding-left: 14px"><i class="expander fa fa-caret-right "></i><a class="" href="../20177/unit-21-23-competitive-markets-demand-and-supply-1.html" title="Unit 2.1-2.3: Competitive markets - demand and supply">Unit 2.1-2.3: Competitive markets - demand and supply</a></li><ul class="level-2 "><li class=" parent" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../28517/unit-21-demand-1.html" title="Unit 2.1: Demand">Unit 2.1: Demand</a></li><ul class="level-3 "><li class="" style="padding-left: 42px"><i class="expander fa fa-caret-right "></i><a class="" href="../22349/determinants-of-demand-1.html" title="Determinants of demand">Determinants of demand</a></li></ul><li class=" parent" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../29949/unit-22-supply-.html" title="Unit 2.2: Supply ">Unit 2.2: Supply </a></li><ul class="level-3 "><li class="" style="padding-left: 42px"><i class="expander fa fa-caret-right "></i><a class="" href="../20184/changes-to-supply-and-demand-.html" title="Changes to supply and demand ">Changes to supply and demand </a></li><li class="" style="padding-left: 42px"><i class="expander fa fa-caret-right "></i><a class="" href="../21992/practise-exercises-1.html" title="Practise exercises">Practise exercises</a></li><li class="" style="padding-left: 42px"><i class="expander fa fa-caret-right "></i><a class="" href="../26112/gold-exchange-game-demand-and-supply-1.html" title="Gold exchange game: Demand and supply">Gold exchange game: Demand and supply</a></li></ul><li class=" parent" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../20194/unit-23-competitive-market-equilibrium-1.html" title="Unit 2.3: Competitive market equilibrium">Unit 2.3: Competitive market equilibrium</a></li><ul class="level-3 "><li class="" style="padding-left: 42px"><i class="expander fa fa-caret-right "></i><a class="" href="../20144/producer-and-consumer-surplus-1.html" title="Producer and consumer surplus">Producer and consumer surplus</a></li></ul><li class=" parent" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../22351/veblen-goods-and-super-luxury-goods-1.html" title="Veblen goods and super luxury goods">Veblen goods and super luxury goods</a></li><ul class="level-3 "><li class="" style="padding-left: 42px"><i class="expander fa fa-caret-right "></i><a class="" href="../25677/are-cryptocurrencies-the-new-tulipmania.html" title="Are Cryptocurrencies the new Tulipmania?">Are Cryptocurrencies the new Tulipmania?</a></li></ul><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../20472/unit-21-23-multiple-choice-quiz.html" title="Unit 2.1-2.3: Multiple choice quiz">Unit 2.1-2.3: Multiple choice quiz</a></li></ul><li class=" parent" style="padding-left: 14px"><i class="expander fa fa-caret-right "></i><a class="" href="../20113/unit-24-consumer-and-producer-behaviour-hl-only-1.html" title="Unit 2.4: Consumer and producer behaviour (HL only)">Unit 2.4: Consumer and producer behaviour (HL only)</a></li><ul class="level-2 "><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../36073/behavioural-economics-consumer-biases-nudge-theory-hl-only-1.html" title="Behavioural economics: Consumer biases / nudge theory (HL only)">Behavioural economics: Consumer biases / nudge theory (HL only)</a></li><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../20378/business-objectives-hl-only.html" title="Business objectives (HL only)">Business objectives (HL only)</a></li><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../28741/unit-21-24-review-terms--1.html" title="Unit 2.1-2.4: Review terms ">Unit 2.1-2.4: Review terms </a></li></ul><li class=" parent" style="padding-left: 14px"><i class="expander fa fa-caret-right "></i><a class="" href="../20195/unit-25-26-elasticity-1.html" title="Unit 2.5-2.6: Elasticity">Unit 2.5-2.6: Elasticity</a></li><ul class="level-2 "><li class=" parent" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../28713/unit-25-price-elasticity-of-demand-1.html" title="Unit 2.5: Price elasticity of demand">Unit 2.5: Price elasticity of demand</a></li><ul class="level-3 "><li class="" style="padding-left: 42px"><i class="expander fa fa-caret-right "></i><a class="" href="../21545/determinants-of-price-elasticity-.html" title="Determinants of price elasticity ">Determinants of price elasticity </a></li><li class="" style="padding-left: 42px"><i class="expander fa fa-caret-right "></i><a class="" href="../21532/ped-elasticity-and-sales-revenue.html" title="PED elasticity and sales revenue?">PED elasticity and sales revenue?</a></li></ul><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../21259/unit-25-income-elasticity-of-demand-yed.html" title="Unit 2.5: Income elasticity of demand (YED)">Unit 2.5: Income elasticity of demand (YED)</a></li><li class=" parent" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../21200/unit-26-price-elasticity-of-supply.html" title="Unit 2.6: Price elasticity of supply">Unit 2.6: Price elasticity of supply</a></li><ul class="level-3 "><li class="" style="padding-left: 42px"><i class="expander fa fa-caret-right "></i><a class="" href="../20207/perfectly-elastic-inelastic-supply-curves.html" title="Perfectly elastic / inelastic supply curves">Perfectly elastic / inelastic supply curves</a></li></ul><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../20230/a-mathematical-note-about-elasticity-.html" title="A mathematical note about elasticity ">A mathematical note about elasticity </a></li><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../39037/demand-and-supply-crossword.html" title="Demand and supply crossword">Demand and supply crossword</a></li><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../29021/unit-25-26-review-terms-1.html" title="Unit 2.5-2.6: Review terms">Unit 2.5-2.6: Review terms</a></li><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../20474/unit-25-26-multiple-choice-quiz--1.html" title="Unit 2.5-2.6: Multiple choice quiz ">Unit 2.5-2.6: Multiple choice quiz </a></li><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../44474/unit-21-25-competitive-markets-quiz-1.html" title="Unit 2.1- 2.5: Competitive markets quiz">Unit 2.1- 2.5: Competitive markets quiz</a></li></ul><li class=" parent" style="padding-left: 14px"><i class="expander fa fa-caret-right "></i><a class="" href="../20243/unit-27-the-role-of-government-in-microeconomics--1.html" title="Unit 2.7: The role of government in microeconomics ">Unit 2.7: The role of government in microeconomics </a></li><ul class="level-2 "><li class=" parent" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../26590/indirect-taxation.html" title="Indirect taxation">Indirect taxation</a></li><ul class="level-3 "><li class="" style="padding-left: 42px"><i class="expander fa fa-caret-right "></i><a class="" href="../20246/ped-and-the-burden-of-tax-hl-only-.html" title="PED and the burden of tax (HL only) ">PED and the burden of tax (HL only) </a></li></ul><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../20277/government-subsidies--1.html" title="Government subsidies ">Government subsidies </a></li><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../29117/unit-27-indirect-tax-and-subsidy-review-terms-1.html" title="Unit 2.7: Indirect tax and subsidy review terms">Unit 2.7: Indirect tax and subsidy review terms</a></li><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../20287/price-controls-maximum-price--1.html" title="Price controls − maximum price ">Price controls − maximum price </a></li><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../20288/minimum-price-.html" title="Minimum price ">Minimum price </a></li><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../21540/minimum-wage-.html" title="Minimum wage ">Minimum wage </a></li><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../38849/labour-market-crossword-1.html" title="Labour market crossword">Labour market crossword</a></li><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../29260/unit-27-price-controls-review-terms-1.html" title="Unit 2.7: Price controls review terms">Unit 2.7: Price controls review terms</a></li></ul><li class=" parent" style="padding-left: 14px"><i class="expander fa fa-caret-right "></i><a class="" href="../20303/unit-28-210-market-failure--1.html" title="Unit 2.8-2.10: Market failure ">Unit 2.8-2.10: Market failure </a></li><ul class="level-2 "><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../21543/unit-28-merit-goods--1.html" title="Unit 2.8: Merit goods ">Unit 2.8: Merit goods </a></li><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../23123/unit-28-demerit-goods-negative-externalities-1.html" title="Unit 2.8: Demerit goods / negative externalities">Unit 2.8: Demerit goods / negative externalities</a></li><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../38850/market-failure-crossword-1.html" title="Market failure crossword">Market failure crossword</a></li><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../29262/unit-29-economics-of-the-environment-and-public-goods--1.html" title="Unit 2.9: Economics of the environment and public goods ">Unit 2.9: Economics of the environment and public goods </a></li><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../20332/unit-210-asymmetric-information-hl-only-1.html" title="Unit 2.10: Asymmetric information (HL only)">Unit 2.10: Asymmetric information (HL only)</a></li><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../29828/unit-28-210-market-failure-review-sheet.html" title="Unit 2.8-2.10: Market failure review sheet">Unit 2.8-2.10: Market failure review sheet</a></li><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../29827/unit-28-210-market-failure-review-terms.html" title="Unit 2.8-2.10: Market failure review terms">Unit 2.8-2.10: Market failure review terms</a></li><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../20479/unit-27-210-multiple-choice-quiz--1.html" title="Unit 2.7-2.10: Multiple choice quiz ">Unit 2.7-2.10: Multiple choice quiz </a></li><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../44501/unit-27-210-government-failure-revision-quiz-1.html" title="Unit 2.7-2.10 Government failure revision quiz">Unit 2.7-2.10 Government failure revision quiz</a></li></ul><li class=" parent" style="padding-left: 14px"><i class="expander fa fa-caret-right "></i><a class="" href="../20330/unit-211-market-power-hl-only-1.html" title="Unit 2.11: Market power (HL only)">Unit 2.11: Market power (HL only)</a></li><ul class="level-2 "><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../29835/assessment-map.html" title="Assessment map">Assessment map</a></li><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../21528/production-hl-only.html" title="Production (HL only)">Production (HL only)</a></li><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../29978/revenue-theory-hl-only.html" title="Revenue theory (HL only)">Revenue theory (HL only)</a></li><li class=" parent" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../20357/costs-of-production-hl-only.html" title="Costs of production (HL only)">Costs of production (HL only)</a></li><ul class="level-3 "><li class="" style="padding-left: 42px"><i class="expander fa fa-caret-right "></i><a class="" href="../21286/economies-and-diseconomies-of-scale-hl-only.html" title="Economies and diseconomies of scale (HL only)">Economies and diseconomies of scale (HL only)</a></li><li class="" style="padding-left: 42px"><i class="expander fa fa-caret-right "></i><a class="" href="../22494/long-run-average-cost-curves-hl-only.html" title="Long run average cost curves (HL only)">Long run average cost curves (HL only)</a></li><li class="" style="padding-left: 42px"><i class="expander fa fa-caret-right "></i><a class="" href="../29838/breakeven-hl-only.html" title="Breakeven (HL only)">Breakeven (HL only)</a></li></ul><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../20340/economic-profit-hl-only.html" title="Economic profit (HL only)">Economic profit (HL only)</a></li><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../39082/market-power-crossword.html" title="Market power crossword">Market power crossword</a></li><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../22495/revision-exercise-on-cost-and-revenue-hl-only.html" title="Revision exercise on cost and revenue (HL only)">Revision exercise on cost and revenue (HL only)</a></li><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../29845/unit-211-costs-revenue-and-profit-review-sheet-hl-only.html" title="Unit 2.11: Costs, revenue and profit review sheet (HL only)">Unit 2.11: Costs, revenue and profit review sheet (HL only)</a></li><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../44484/unit-211-multiple-choice-quiz-sl-units-1.html" title="Unit 2.11: Multiple choice quiz (SL units)">Unit 2.11: Multiple choice quiz (SL units)</a></li><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../29846/market-structures-hl-only-1.html" title="Market structures (HL only)">Market structures (HL only)</a></li><li class=" parent" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../29981/perfect-competition-hl-only-1.html" title="Perfect competition (HL only)">Perfect competition (HL only)</a></li><ul class="level-3 "><li class="" style="padding-left: 42px"><i class="expander fa fa-caret-right "></i><a class="" href="../24486/profit-in-perfect-competition-hl-only-1.html" title="Profit in perfect competition (HL only)">Profit in perfect competition (HL only)</a></li><li class="" style="padding-left: 42px"><i class="expander fa fa-caret-right "></i><a class="" href="../21302/efficiency-in-perfect-competition-hl-only.html" title="Efficiency in perfect competition (HL only)">Efficiency in perfect competition (HL only)</a></li></ul><li class=" parent" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../20430/monopoly-hl-only-1.html" title="Monopoly (HL only)">Monopoly (HL only)</a></li><ul class="level-3 "><li class="" style="padding-left: 42px"><i class="expander fa fa-caret-right "></i><a class="" href="../24529/profit-and-revenue-maximisation-in-monopoly-hl-only-1.html" title="Profit and revenue maximisation in monopoly (HL only)">Profit and revenue maximisation in monopoly (HL only)</a></li><li class="" style="padding-left: 42px"><i class="expander fa fa-caret-right "></i><a class="" href="../21306/a-comparison-of-monopoly-and-perfect-competition-hl-only-1.html" title="A comparison of monopoly and perfect competition? (HL only)">A comparison of monopoly and perfect competition? (HL only)</a></li></ul><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../20435/monopolistic-competition-hl-only-1.html" title="Monopolistic competition (HL only)">Monopolistic competition (HL only)</a></li><li class=" parent" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../20436/oligopoly-hl-only-1.html" title="Oligopoly (HL only)">Oligopoly (HL only)</a></li><ul class="level-3 "><li class="" style="padding-left: 42px"><i class="expander fa fa-caret-right "></i><a class="" href="../22310/game-theory-hl-only-1.html" title="Game theory (HL only)">Game theory (HL only)</a></li></ul><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../29918/unit-211-market-structures-review-sheet-hl-only-1.html" title="Unit 2.11: Market structures review sheet (HL only)">Unit 2.11: Market structures review sheet (HL only)</a></li><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../32337/unit-211-diagram-revision-.html" title="Unit 2.11: Diagram revision ">Unit 2.11: Diagram revision </a></li><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../20480/unit-211-multiple-choice-quiz-hl-only-1.html" title="Unit 2.11: Multiple choice quiz (HL only)">Unit 2.11: Multiple choice quiz (HL only)</a></li></ul><li class="" style="padding-left: 14px"><i class="expander fa fa-caret-right "></i><a class="" href="../32425/unit-212-the-markets-inability-to-achieve-equity-hl-only-1.html" title="Unit 2.12: The market’s inability to achieve equity (HL only)">Unit 2.12: The market’s inability to achieve equity (HL only)</a></li></ul><li class=" parent std-toplevel" style="padding-left: 4px"><i class="expander fa fa-caret-right "></i><a class="" href="../21842/unit-3-macroeconomics-.html" title="Unit 3: Macroeconomics ">Unit 3: Macroeconomics </a></li><ul class="level-1 "><li class=" parent" style="padding-left: 14px"><i class="expander fa fa-caret-right "></i><a class="" href="../3942/unit-31-measuring-economic-activity-and-illustrating-its-variati-1.html" title="Unit 3.1: Measuring economic activity and illustrating its variations">Unit 3.1: Measuring economic activity and illustrating its variations</a></li><ul class="level-2 "><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../20558/calculating-national-income-1.html" title="Calculating national income">Calculating national income</a></li><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../21297/gdp-gni-as-a-measure-of-living-standards.html" title="GDP / GNI as a measure of living standards">GDP / GNI as a measure of living standards</a></li><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../20567/national-income-statistics-1.html" title="National income statistics">National income statistics</a></li><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../21580/the-business-cycle-1.html" title="The business cycle">The business cycle</a></li><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../29931/unit-31-economic-activity-review-sheet-1.html" title="Unit 3.1: Economic activity review sheet">Unit 3.1: Economic activity review sheet</a></li></ul><li class=" parent" style="padding-left: 14px"><i class="expander fa fa-caret-right "></i><a class="" href="../20592/unit-32-variations-in-economic-activityaggregate-demand-and-aggr-1.html" title="Unit 3.2: Variations in economic activity—aggregate demand and aggregate supply">Unit 3.2: Variations in economic activity—aggregate demand and aggregate supply</a></li><ul class="level-2 "><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../29933/aggregate-demand-and-supply.html" title="Aggregate demand and supply">Aggregate demand and supply</a></li><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../21582/components-of-aggregate-demand-1.html" title="Components of aggregate demand">Components of aggregate demand</a></li><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../20634/equilibrium-in-macroeconomics-neo-classical-perspective-1.html" title="Equilibrium in macroeconomics (neo-classical perspective)">Equilibrium in macroeconomics (neo-classical perspective)</a></li><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../20439/equilibrium-in-macroeconomics-keynesian-perspective-1.html" title="Equilibrium in macroeconomics (keynesian perspective)">Equilibrium in macroeconomics (keynesian perspective)</a></li><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../21349/john-maynard-keynes-1.html" title="John Maynard Keynes">John Maynard Keynes</a></li><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../20650/keynesian-v-free-market-debate--1.html" title="Keynesian v free market debate ">Keynesian v free market debate </a></li><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../21342/changes-in-the-long-run-aggregate-supply-1.html" title="Changes in the long run aggregate supply">Changes in the long run aggregate supply</a></li><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../30055/unit-32-aggregate-demand-and-supply-review-sheet-1.html" title="Unit 3.2: Aggregate demand and supply review sheet">Unit 3.2: Aggregate demand and supply review sheet</a></li></ul><li class=" parent" style="padding-left: 14px"><i class="expander fa fa-caret-right "></i><a class="" href="../20610/unit-35-and-36-demand-management-fiscal-and-monetary-policy-1.html" title="Unit 3.5 and 3.6: Demand management - fiscal and monetary policy">Unit 3.5 and 3.6: Demand management - fiscal and monetary policy</a></li><ul class="level-2 "><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../30058/government-budget.html" title="Government budget">Government budget</a></li><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../21585/fiscal-policy--1.html" title="Fiscal policy ">Fiscal policy </a></li><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../21343/multiplier-hl-only.html" title="Multiplier (HL only)">Multiplier (HL only)</a></li><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../21795/monetary-policy--1.html" title="Monetary policy ">Monetary policy </a></li><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../30071/independent-central-banks-1.html" title="Independent central banks">Independent central banks</a></li><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../30083/unit-35-and-36-review-sheet.html" title="Unit 3.5 and 3.6 review sheet">Unit 3.5 and 3.6 review sheet</a></li></ul><li class=" parent" style="padding-left: 14px"><i class="expander fa fa-caret-right "></i><a class="" href="../20615/unit-37-supply-side-policies-1.html" title="Unit 3.7: Supply side policies">Unit 3.7: Supply side policies</a></li><ul class="level-2 "><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../20651/the-role-of-supply-side-policies-1.html" title="The role of supply side policies">The role of supply side policies</a></li><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../20622/market-based-and-interventionist-supply-side-policies--1.html" title="Market based and interventionist supply side policies ">Market based and interventionist supply side policies </a></li><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../39129/aggregate-demand-and-supply-crossword-1.html" title="Aggregate demand and supply crossword">Aggregate demand and supply crossword</a></li><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../30086/unit-37-review-sheet-1.html" title="Unit 3.7: Review sheet">Unit 3.7: Review sheet</a></li><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../20755/unit-31-32-and-35-37-multiple-choice-quiz--1.html" title="Unit 3.1-3.2 and 3.5-3.7: Multiple choice quiz ">Unit 3.1-3.2 and 3.5-3.7: Multiple choice quiz </a></li></ul><li class="" style="padding-left: 14px"><i class="expander fa fa-caret-right "></i><a class="" href="../44522/unit-31-32-and-35-37-revision-quiz-1.html" title="Unit 3.1-3.2 and 3.5-3.7: Revision quiz">Unit 3.1-3.2 and 3.5-3.7: Revision quiz</a></li><li class=" parent" style="padding-left: 14px"><i class="expander fa fa-caret-right "></i><a class="" href="../20686/unit-33-macroeconomic-objectives.html" title="Unit 3.3: Macroeconomic objectives">Unit 3.3: Macroeconomic objectives</a></li><ul class="level-2 "><li class=" parent" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../30118/unemployment.html" title="Unemployment">Unemployment</a></li><ul class="level-3 "><li class="" style="padding-left: 42px"><i class="expander fa fa-caret-right "></i><a class="" href="../21351/types-of-unemployment.html" title="Types of unemployment?">Types of unemployment?</a></li><li class="" style="padding-left: 42px"><i class="expander fa fa-caret-right "></i><a class="" href="../21593/equilibrium-unemployment-.html" title="Equilibrium unemployment ">Equilibrium unemployment </a></li><li class="" style="padding-left: 42px"><i class="expander fa fa-caret-right "></i><a class="" href="../21594/disequilibrium-unemployment-1.html" title="Disequilibrium unemployment">Disequilibrium unemployment</a></li><li class="" style="padding-left: 42px"><i class="expander fa fa-caret-right "></i><a class="" href="../30458/unemployment-review-sheet-1.html" title="Unemployment review sheet">Unemployment review sheet</a></li></ul><li class=" parent" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../20713/inflation--1.html" title="Inflation ">Inflation </a></li><ul class="level-3 "><li class="" style="padding-left: 42px"><i class="expander fa fa-caret-right "></i><a class="" href="../20712/measuring-inflation-hl-only-1.html" title="Measuring inflation (HL only)">Measuring inflation (HL only)</a></li><li class="" style="padding-left: 42px"><i class="expander fa fa-caret-right "></i><a class="" href="../20685/costs-of-inflation-and-deflation-1.html" title="Costs of inflation and deflation">Costs of inflation and deflation</a></li><li class="" style="padding-left: 42px"><i class="expander fa fa-caret-right "></i><a class="" href="../30465/inflation-review-sheet.html" title="Inflation review sheet">Inflation review sheet</a></li></ul><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../20716/unemployment-v-inflation-trade-off-hl-only-1.html" title="Unemployment v inflation trade off (HL only)">Unemployment v inflation trade off (HL only)</a></li><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../39133/macroeconomic-objectives-crossword-1.html" title="Macroeconomic objectives crossword">Macroeconomic objectives crossword</a></li><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../44511/unit-33-macroeconomic-indicators-revision-quiz-1.html" title="Unit 3.3: Macroeconomic indicators revision quiz">Unit 3.3: Macroeconomic indicators revision quiz</a></li></ul><li class=" parent" style="padding-left: 14px"><i class="expander fa fa-caret-right "></i><a class="" href="../20741/unit-34-economics-of-inequality-and-poverty-1.html" title="Unit 3.4: Economics of inequality and poverty">Unit 3.4: Economics of inequality and poverty</a></li><ul class="level-2 "><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../32398/inequality-1.html" title="Inequality">Inequality</a></li><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../21356/the-role-of-spending-and-taxation-on-inequality--1.html" title="The role of spending and taxation on inequality ">The role of spending and taxation on inequality </a></li><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../21313/consequences-of-economic-growth-1.html" title="Consequences of economic growth">Consequences of economic growth</a></li><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../30257/economic-growth-and-inequality-review-sheet-1.html" title="Economic growth and inequality review sheet">Economic growth and inequality review sheet</a></li><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../20756/unit-33-34-multiple-choice-.html" title="Unit 3.3-3.4: Multiple choice ">Unit 3.3-3.4: Multiple choice </a></li></ul></ul><li class=" parent std-toplevel" style="padding-left: 4px"><i class="expander fa fa-caret-right "></i><a class="" href="../21844/unit-4-global-economy.html" title="Unit 4: Global economy">Unit 4: Global economy</a></li><ul class="level-1 "><li class=" parent" style="padding-left: 14px"><i class="expander fa fa-caret-right "></i><a class="" href="../21367/unit-41-benefits-of-international-trade.html" title="Unit 4.1: Benefits of international trade">Unit 4.1: Benefits of international trade</a></li><ul class="level-2 "><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../30529/benefits-of-international-trade.html" title="Benefits of international trade">Benefits of international trade</a></li><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../20823/absolute-and-comparative-advantage-hl-only-1.html" title="Absolute and comparative advantage (HL only)">Absolute and comparative advantage (HL only)</a></li></ul><li class=" parent" style="padding-left: 14px"><i class="expander fa fa-caret-right "></i><a class="" href="../20845/unit-42-43-trade-protection-1.html" title="Unit 4.2-4.3: Trade protection">Unit 4.2-4.3: Trade protection</a></li><ul class="level-2 "><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../32419/barriers-to-trade-calculations-are-hl-only-1.html" title="Barriers to trade (calculations are HL only)">Barriers to trade (calculations are HL only)</a></li><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../21610/case-study-on-tata-steel-1.html" title="Case study on Tata Steel">Case study on Tata Steel</a></li><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../23455/the-defence-industry-1.html" title="The Defence industry">The Defence industry</a></li><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../30610/unit-41-43-review-sheet-1.html" title="Unit 4.1-4.3: Review sheet">Unit 4.1-4.3: Review sheet</a></li></ul><li class=" parent" style="padding-left: 14px"><i class="expander fa fa-caret-right "></i><a class="" href="../20894/unit-44-economic-integration--1.html" title="Unit 4.4: Economic integration ">Unit 4.4: Economic integration </a></li><ul class="level-2 "><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../30634/economic-integration-some-hl-tasks-1.html" title="Economic integration (some HL tasks)">Economic integration (some HL tasks)</a></li><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../20840/world-trade-organisation-wto-1.html" title="World trade organisation (WTO)">World trade organisation (WTO)</a></li><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../30635/unit-44-review-sheet-1.html" title="Unit 4.4: Review sheet">Unit 4.4: Review sheet</a></li></ul><li class=" parent" style="padding-left: 14px"><i class="expander fa fa-caret-right "></i><a class="" href="../20853/unit-45-exchange-rates-1.html" title="Unit 4.5: Exchange rates">Unit 4.5: Exchange rates</a></li><ul class="level-2 "><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../30611/floating-exchange-rates-1.html" title="Floating exchange rates">Floating exchange rates</a></li><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../31824/fixed-managed-exchange-rate-systems-some-hl-tasks-1.html" title="Fixed / managed exchange rate systems (some HL tasks)">Fixed / managed exchange rate systems (some HL tasks)</a></li><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../21624/the-market-for-foreign-exchange-1.html" title="The market for foreign exchange">The market for foreign exchange</a></li><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../30614/unit-45-review-sheet-1.html" title="Unit 4.5: Review sheet">Unit 4.5: Review sheet</a></li></ul><li class=" parent" style="padding-left: 14px"><i class="expander fa fa-caret-right "></i><a class="" href="../20859/unit-46-balance-of-payments-1.html" title="Unit 4.6: Balance of payments">Unit 4.6: Balance of payments</a></li><ul class="level-2 "><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../30624/balance-of-payments--1.html" title="Balance of payments ">Balance of payments </a></li><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../21386/current-account-hl-only-1.html" title="Current account (HL only)">Current account (HL only)</a></li><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../20872/the-marshall-lerner-condition-j-curve-hl-only-1.html" title="The Marshall-Lerner condition / J curve (HL only)">The Marshall-Lerner condition / J curve (HL only)</a></li></ul><li class="" style="padding-left: 14px"><i class="expander fa fa-caret-right "></i><a class="" href="../20899/units-41-46-multiple-choice-quiz--1.html" title="Units 4.1-4.6: Multiple choice quiz ">Units 4.1-4.6: Multiple choice quiz </a></li><li class="" style="padding-left: 14px"><i class="expander fa fa-caret-right "></i><a class="" href="../42989/unit-41-46-multiple-choice-quiz-ii-1.html" title="Unit 4.1-4.6: Multiple choice quiz II">Unit 4.1-4.6: Multiple choice quiz II</a></li><li class="" style="padding-left: 14px"><i class="expander fa fa-caret-right "></i><a class="" href="../39438/unit-41-46-international-trade-crossword-1.html" title="Unit 4.1-4.6: International trade crossword">Unit 4.1-4.6: International trade crossword</a></li><li class=" parent" style="padding-left: 14px"><i class="expander fa fa-caret-right "></i><a class="" href="../32423/unit-47-sustainable-development--1.html" title="Unit 4.7: Sustainable development ">Unit 4.7: Sustainable development </a></li><ul class="level-2 "><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../26092/water-scarcity-activity-1.html" title="Water scarcity activity">Water scarcity activity</a></li><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../32426/sustainable-development.html" title="Sustainable development">Sustainable development</a></li></ul><li class=" parent" style="padding-left: 14px"><i class="expander fa fa-caret-right "></i><a class="" href="../20928/unit-48-measuring-development--1.html" title="Unit 4.8: Measuring development ">Unit 4.8: Measuring development </a></li><ul class="level-2 "><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../30686/measuring-development-1.html" title="Measuring development">Measuring development</a></li><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../21627/economic-development--1.html" title="Economic development ">Economic development </a></li><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../30679/unit-47-48-review-sheet.html" title="Unit 4.7-4.8: Review sheet">Unit 4.7-4.8: Review sheet</a></li></ul><li class=" parent" style="padding-left: 14px"><i class="expander fa fa-caret-right "></i><a class="std-disabled" href="#" title="Unit 4.9: Barriers to development">Unit 4.9: Barriers to development</a></li><ul class="level-2 "><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../30727/barriers-to-development-in-international-trade-1.html" title="Barriers to development in International trade">Barriers to development in International trade</a></li></ul><li class=" parent" style="padding-left: 14px"><i class="expander fa fa-caret-right "></i><a class="" href="../32430/unit-410-economic-growth-andor-economic-development-strategies-1.html" title="Unit 4.10: Economic growth and/or economic development strategies">Unit 4.10: Economic growth and/or economic development strategies</a></li><ul class="level-2 "><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../30687/the-role-of-domestic-factors-1.html" title="The role of domestic factors">The role of domestic factors</a></li><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../30688/the-role-of-international-trade-and-development-1.html" title="The role of international trade and development">The role of international trade and development</a></li><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../30689/the-role-of-foreign-direct-investment-fdi-1.html" title="The role of foreign direct investment (FDI)">The role of foreign direct investment (FDI)</a></li><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../25240/the-role-of-foreign-aid--1.html" title="The role of foreign aid ">The role of foreign aid </a></li><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../30819/multilateral-development-assistance-1.html" title="Multilateral development assistance">Multilateral development assistance</a></li><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../21632/the-role-of-international-debt-1.html" title="The role of international debt">The role of international debt</a></li><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../25242/the-balance-between-markets-and-intervention-1.html" title="The balance between markets and intervention">The balance between markets and intervention</a></li><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../30926/unit-49-410-review-sheet.html" title="Unit 4.9 - 4.10: Review sheet">Unit 4.9 - 4.10: Review sheet</a></li></ul></ul><li class=" parent std-toplevel" style="padding-left: 4px"><i class="expander fa fa-caret-right "></i><a class="" href="../21380/assessment.html" title="Assessment">Assessment</a></li><ul class="level-1 "><li class=" parent" style="padding-left: 14px"><i class="expander fa fa-caret-right "></i><a class="std-disabled" href="#" title="Internal assessment ">Internal assessment </a></li><ul class="level-2 "><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../20608/how-to-write-your-ia-student-handout.html" title="How to write your IA? (student handout)">How to write your IA? (student handout)</a></li><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../21428/how-to-interpret-the-assessment-criteria-1.html" title="How to interpret the assessment criteria?">How to interpret the assessment criteria?</a></li><li class=" parent" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="std-disabled" href="#" title="Grading practise ">Grading practise </a></li><ul class="level-3 "><li class=" parent" style="padding-left: 42px"><i class="expander fa fa-caret-right "></i><a class="std-disabled" href="#" title="Sample 3a">Sample 3a</a></li><ul class="level-4 "><li class="" style="padding-left: 56px"><i class="expander fa fa-caret-right "></i><a class="" href="../32083/sample-3b-1.html" title="Sample 3b">Sample 3b</a></li></ul></ul></ul><li class="" style="padding-left: 14px"><i class="expander fa fa-caret-right "></i><a class="" href="../32022/assessment-markbands-1.html" title="Assessment markbands">Assessment markbands</a></li></ul><li class=" parent std-toplevel" style="padding-left: 4px"><i class="expander fa fa-caret-right "></i><a class="" href="../4332/exam-style-questions.html" title="Exam style questions">Exam style questions</a></li><ul class="level-1 "><li class=" parent" style="padding-left: 14px"><i class="expander fa fa-caret-right "></i><a class="std-disabled" href="#" title="Paper 1 style examination questions">Paper 1 style examination questions</a></li><ul class="level-2 "><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../40100/unit-211-212-questions.html" title="Unit 2.11-2.12 questions">Unit 2.11-2.12 questions</a></li></ul><li class="" style="padding-left: 14px"><i class="expander fa fa-caret-right "></i><a class="" href="../45102/paper-1-guidance-on-essay-writing-1.html" title="Paper 1 guidance on essay writing">Paper 1 guidance on essay writing</a></li></ul></ul></nav> </div> </div> </div> </div><div style="margin-top: 20px;"><style type="text/css">
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<div id="main-column" class="span9"> <article id="unit-281-market-failure-externalities" style="margin-top: 16px;">
<h1 class="section-title">Unit 2.8(1): Market failure – externalities</h1>
<ul class="breadcrumb"><li><a title="Home" href="../../../economics.html"><i class="fa fa-home"></i></a><span class="divider">/</span></li><li><span class="gray">Textbook</span><span class="divider">/</span></li><li><span class="gray">Chapter 2: Microeconomics</span><span class="divider">/</span></li><li><span class="active">Unit 2.8(1): Market failure – externalities</span></li></ul>
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<div class="intro-card"><div class="bg-cover" style="background-image: url("/media/ib/economics/images/textbook/market-failure/tradeable-permits-power-station(1).jpg");"></div><img src="../../../ib/economics/images/textbook/market-failure/tradeable-permits-power-station(1).jpg" style="display: none"><div class="content"><p>Markets fail when the free market forces of demand and supply lead to an allocation of resources that does not maximise the welfare of a country’s citizens. It means that the marginal social costs that result from the production and consumption of a good do not equal the marginal social benefits. Economists often express market failure as a misallocation of resources or where resources have been allocated inefficiently.</p></div></div><div class="panel panel-has-footer" style="box-shadow: rgba(17, 34, 51, 0.3) 0px 10px 30px -15px; border-color: rgb(39, 45, 105);"><div class="panel-heading" style="background-color: rgb(39, 45, 105);"><a class="expander pull-right" href="#"><span class="fa fa-plus"></span></a><div><h3><strong>What you should know by the end of this chapter:</strong></h3></div></div></div><ul><li><img alt="" src="../../../ib/economics/images/textbook/market-failure/externality-intro.jpg" style="float: right; width: 400px; height: 208px;" title="https://blog.swiftype.com/2017/10/16/higher-education-site-search/">Explanation of market failure</li><li>Allocative efficiency when the social/community surplus is maximised</li><li>Social efficiency: marginal social cost (MSC) equals marginal social benefit (MSB)</li><li>External costs / negative externalities of production and consumption</li><li>External benefits / positive externalities of production and consumption</li><li>Understanding of and calculation (HL) of welfare loss.<hr class="hidden"></li></ul><p><strong>Can you think of how the market might fail in each of the four pictures?</strong></p><hr class="hidden"><div class="greyBg"><h3>Revision material</h3><p><img alt="" src="../../../ib/economics/images/textbook/revision-material/logo.jpg" style="width: 200px; height: 95px; float: left;">The link to the attached pdf is revision material from <strong>Unit 2.8(1): Market Failure – Externalities.</strong><strong> </strong>The revision material can be downloaded as a student handout.</p><p><a href="../../../media/ib/economics/images/textbook/market-failure/negative-production-externalities/externalities-revision-notes.pdf.html" target="_blank" title="Revision"><img class="ico" src="../../../thinkib/icons/revision.png"> Revision notes</a></p></div><div class="blueBg"><h3><strong>What is market failure?</strong></h3><p>Markets fail when the free market forces of demand and supply lead to an allocation of resources that does not maximise the welfare of a country’s citizens. It means that the marginal social costs that result from the production and consumption of a good do not equal the marginal social benefits. The concepts of social costs and benefits are covered later in this chapter.</p><p>Economists often express market failure as a misallocation of resources or where resources have been allocated inefficiently. In the market theory we looked at in chapter 2.3, market failure occurs when the community/social surplus (consumer surplus plus producer surplus) is not maximised.</p></div><div class="pinkBg"><div class="panel panel-has-footer" style="box-shadow: rgba(17, 34, 51, 0.3) 0px 10px 30px -15px; border-color: rgb(39, 45, 105);"><div class="panel-heading" style="background-color: rgb(39, 45, 105);"><a class="expander pull-right" href="#"><span class="fa fa-plus"></span></a><div><h4><strong>Inquiry case example - Living in one of the most polluted cities in the world</strong></h4></div></div></div><p>A<img alt="" height="248" src="../../../ib/economics/images/textbook/market-failure/pollution-in-china.jpg" style="float: left;" title="https://blogs.wsj.com/chinarealtime/2015/02/02/say-hello-to-chinas-new-most-polluted-city-baoding/" width="375">round 10 million people live in one of China’s most polluted cities – Baoding. One resident claimed: ‘generally, there is smog on most days and we rarely see blue skies now.’ On bad days the visibility for driving is reduced and headlights and traffic lights are barely visible. There is also a metallic taste in the air. The poor air quality accounts for very high levels of respiratory illnesses in the city, along with thousands of deaths. Baoding is in China’s Hebei province where the air is ‘fed’ by the chimney stacks of coal and steel plants.</p><hr class="hidden"><h5><a href="../../../media/ib/economics/images/textbook/market-failure/negative-production-externalities/market-failure.pdf.html" target="_blank" title="Questions"><img class="ico" src="../../../thinkib/icons/question.png"> Worksheet questions</a></h5><h5><strong>Questions</strong></h5><p><strong>a. Explain two benefits to the Chinese economy of the production of coal. [4]</strong></p><section class="tib-hiddenbox"><p>Coal production will bring the following benefits to the Chinese economy:</p><ul><li>It provides heat and light for Chinese households and businesses.</li><li>It creates employment for Chinese workers. </li></ul></section><p><strong>b. Explain what you understand by the term market failure. [4]</strong></p><section class="tib-hiddenbox"><p>Markets fail when the free market forces of demand and supply lead to an allocation of resources that does not maximise the welfare of a country’s citizens. It means that the marginal social costs that result from the production and consumption of a good do not equal the marginal social benefits.</p></section><h5><strong>Investigation</strong></h5><p><strong>Discuss with your class why the market might have failed in this case? </strong></p></div><div class="blueBg"><h4><strong>Allocative efficiency </strong></h4><hr class="hidden"><p><img alt="" height="289" src="../../../ib/economics/images/textbook/market-failure/allocative-effciency.jpg" style="float: right;" width="431">Allocative efficiency is achieved in a market when the marginal benefit of consuming a good is equal to the marginal cost of producing it. This situation exists when demand equals supply, assuming there are no externalities in the market. External costs and benefits are explained in the next sections of this chapter. </p><p>When demand equals supply in a market it is in equilibrium and the social/community surplus is maximised. This means the consumer and producer surpluses are maximised.</p><hr class="hidden"><p>If all markets in the economy achieve maximum social/community surplus the welfare of a country’s citizens will be maximised. Diagram 2.37 show the maximisation of the consumer surplus (green area) and producer surplus (yellow area) at the equilibrium price. This is allocative efficiency because the social/community surplus is maximised.</p><h4><strong>Externalities</strong></h4><p>Externalities are any impact that the production or consumption of a good or service has on a third party. A third party is someone other than the producers and consumers of a good or service in a market. Third parties are often stakeholders in a community who can be positively or negatively affected by the activity in a market.</p><hr class="hidden"><p>For example, <img alt="" height="269" src="../../../ib/economics/images/textbook/market-failure/litter.jpg" style="float: left;" width="320">the Glastonbury music festival brings benefits to the third parties (local residents and businesses) of this small town in Devon, England such as local tax income for better public services, and visitors who shop in the town’s retailers and improvements to the local road infrastructure. But it comes with costs to third parties as well. When the festival takes place there will be road congestion, increased amounts of litter and noise pollution.</p><hr class="hidden"><p>Economists divide externalities into:</p><ul><li>External costs or negative externalities</li><li>External benefits or positive externalities</li></ul><h3><strong>External costs or negative externalities </strong></h3><p>External costs are the spillover costs that negatively impact third parties which result from the production or consumption of a good or service. They can be divided into two types: production external costs and consumption external costs.</p><h4><strong>Production external costs (negative externalities)</strong><img alt="" height="240" src="../../../ib/economics/images/textbook/market-failure/egg-farm.jpg" style="float: right;" width="363"></h4><p>Production external costs come from the production of a good or service. A chicken farm, for example, emits a very strong smell, which adversely affects residents who live within a mile of the farm, as well as people who travel past the farm. </p><hr class="hidden"><h5><strong>Marginal private costs</strong></h5><p>When the eggs are produced the costs of resources used in their production determines the supply decision of the egg producer. These are the raw materials, labour and capital used by the egg farm. These are the private costs of production. Each extra unit produced by the farm is the marginal private cost.</p><h4><strong>Marginal social costs</strong></h4><p>The external costs (negative effects) on the local residents of the strong smell of producing the eggs are not included in the private costs of production. The social cost of producing the eggs is:</p><p>marginal private cost (MPC) + external cost = marginal social cost (MSC)</p><h5><strong> Production external costs and market failure</strong></h5><p>We can use marginal cost and benefit analysis to examine how external production costs lead to market failure. Diagram 2.38 is used to illustrate this marginal analysis.</p><p>If we assume the only externalities in a market are production external costs (there are no other production or consumption externalities) then demand or marginal private benefits from the consumption of the good equals its marginal social benefits.</p><p><img alt="" height="320" src="../../../ib/economics/images/textbook/market-failure/externalcost2.jpg" style="float: left;" width="464">The market output is determined by demand and supply or where marginal private benefits equal marginal private costs. In the egg market example, this is set where the demand for eggs (MPB) equals the supply of eggs (MPC) at output Q and price P in diagram 2.38. </p><hr class="hidden"><p>Market output: MPB = MPC = output Q</p><p>The socially efficient output is set where marginal social benefits equal marginal social costs at Q*, which is below the market output at Q. This is shown in diagram 2.38.</p><hr class="hidden"><h5><strong>Welfare loss</strong></h5><p>A welfare loss to society occurs in a market when the output of a good or service means the social cost of production is greater than the social benefit of production. The yellow shaded area in diagram 2.38 shows the total welfare loss in the egg market example. At each level of output beyond Q* in diagram 2.38, MSC is greater than MSB, which means that the cost to society of each extra unit of eggs produced is greater than the benefit.</p><h5><strong>Calculating the welfare loss (HL)</strong></h5><p>A market’s welfare loss can be calculated by working out the area of the yellow welfare loss triangle in diagram 2.38. In this case, the data from the egg farm example is:</p><ul><li>Q*: 300,000 units</li><li>Q: 500,000 units</li><li>MSB at Q: $2.00</li><li>MSC at Q: $3.00</li></ul><p><strong>Calculation:</strong></p><p>(Q - Q*) x (MSC – MSB) / 2 = welfare loss</p><p>(500,000 – 300,000) x ($3.00 - $2.00) / 2 = $100,000</p></div><div class="pinkBg"><div class="panel panel-has-footer" style="box-shadow: rgba(17, 34, 51, 0.3) 0px 10px 30px -15px; border-color: rgb(39, 45, 105);"><div class="panel-heading" style="background-color: rgb(39, 45, 105);"><a class="expander pull-right" href="#"><span class="fa fa-plus"></span></a><div><h4><strong>Inquiry case example - Erin Brockovich</strong></h4></div></div><strong><img alt="" height="468" src="../../../ib/economics/images/textbook/market-failure/erin.jpg" style="float: right;" width="313"></strong></div><p>In 1993 an American paralegal called Erin Brockovich built a case against the Pacific Gas and Electric Company (PG&E). The company had been using a substance called hexavalent chromium in one of its cooling towers to prevent corrosion. The contaminated water from the plant made its way into the groundwater near the town of Hinkley, California. The contaminated water caused very significant health problems for many of Hinkley's residents. The case was settled in favour of the residents in 1996 for US$333 million, the largest settlement ever paid in a direct-action lawsuit in US history.</p><p>The case was made into a film called ‘Erin Brockovich’, starring Julia Roberts in the title role. It was nominated for five Academy Awards. The PG&E example is one of many high-profile examples of production negative externalities.</p><hr class="hidden"><h5></h5><h5><a href="../../../media/ib/economics/images/textbook/market-failure/negative-production-externalities/negative-production-externaility(1).pdf.html" target="_blank" title="Questions"><img class="ico" src="../../../thinkib/icons/question.png"> Worksheet questions</a></h5><h5><strong>Questions</strong></h5><p><strong>a. Define the term negative production externality. [2]</strong></p><section class="tib-hiddenbox"><p>Negative production externalities are the spillover costs that negatively impact third parties which result from the production of a good or service. </p></section><p><strong>b. Explain the negative externalities of the production by the Pacific Gas and Electric Company (PG&E). [4]</strong></p><section class="tib-hiddenbox"><p>When Pacific Gas and Electric Company (PG&E) used hexavalent chromium to prevent corrosion at its Hinkley plant it leaked into the groundwater near the town of Hinkley, California and this caused serious health problems to the local residents. The health problems for Hinkley’s residents caused by the PG&E plant are a negative production externality.</p></section><p><strong>c. Using a diagram, explain how negative production externalities lead to market failure in the energy market. [4]</strong></p><section class="tib-hiddenbox"><p><img alt="" src="../../../ib/economics/images/textbook/inquiry-case-example-questions/negative-externalities-production.jpg" style="float: right; width: 400px; height: 280px;">The negative production externalities, in this case, are the health consequences for local residents in Hinkley caused by toxic water from the power plant. When the negative externalities associated with energy production are added to the private cost it means that the MSC curve is above the MPC curve and this means the socially efficient output of energy Q* is below the market output of Q. There is an over-allocation of resources in the energy market. The yellow triangle represents the welfare loss associated with energy provision.</p></section><h5><strong>Investigation</strong></h5><p><strong>Watch some clips from the film Erin Brockovich and discuss with your class the market failure issues involved in the film. </strong></p><p><strong>Investigate any other films based on a similar theme of negative externalities of production.</strong></p><hr class="hidden"></div><div class="blueBg"><h4><strong>Consumption external costs</strong></h4><p>Consumption external costs exist when third parties experience the external cost from the consumption of a good or service. For example, when people smoke cigarettes, the smell and smoke from the cigarettes adversely affect other people who are not smoking. The rate of illness caused by cigarette smoking is also very high, which means that smokers take up more resources in a state-run health service than non-smokers do. </p><hr class="hidden"><p><img alt="" height="271" src="../../../ib/economics/images/textbook/market-failure/smoking.jpg" style="float: left;" width="373">The negative effects of consumption external costs, in this case smoking cigarettes, are not included in the demand curve or marginal private benefits of cigarette consumption, which means that the marginal social benefits of smoking are lower than the marginal private benefits. The marginal social benefits of consuming cigarettes lie to the left of the marginal private benefit or demand curve. This is shown in diagram 2.39. Marginal private benefit + external cost = marginal social benefit</p><hr class="hidden"> <h5><strong>Consumption external costs and market failure<img alt="" src="../../../ib/economics/images/textbook/market-failure/external-cost-consumption2.jpg" style="float: right; width: 450px; height: 321px;"></strong></h5><p>If we assume there are no externalities when producing cigarettes, then supply equals the marginal social cost of producing cigarettes. As a result, the output of the cigarette market is set where the demand for cigarettes equals the supply of cigarettes at price P and output Q.</p><p>The socially efficient level of output for cigarettes is where marginal social benefits equal marginal social costs at output Q*. This is shown in diagram 2.39. </p><hr class="hidden"><p>In this case, the cigarette market is producing at output Q which is above the socially efficient level at Q*. This is a market failure because there is an over-allocation of resources in the cigarette market.</p><hr class="hidden"><h5><strong>Welfare loss</strong></h5><p>The yellow shaded area in diagram 2.39 represents the welfare loss to society from the over-allocation of resources in this example. At each level of output beyond Q* in diagram 2.39, MSC is greater than MSB which means that the cost to society of each extra unit of cigarettes consumed is greater than the benefit. </p><h5><strong>Calculating the welfare loss (HL)</strong></h5><p>A market’s welfare loss can be calculated by working out the area of the yellow welfare loss triangle in diagram 2.39. In this case, the data from the cigarette example is:</p><ul><li>Q*: 3.6 million</li><li>Q: 4.8 million</li><li>MSB at Q: $9.00</li><li>MSC at Q: $15.00</li></ul><p><strong>Calculation:</strong></p><p>(Q - Q*) x (MSC – MSB) / 2 = welfare loss</p><p>(4.8m – 3.6m) x ($15.00 - $9.00) / 2 = $3.6 million </p></div><div class="pinkBg"><div class="panel panel-has-footer" style="box-shadow: rgba(17, 34, 51, 0.3) 0px 10px 30px -15px; border-color: rgb(39, 45, 105);"><div class="panel-heading" style="background-color: rgb(39, 45, 105);"><a class="expander pull-right" href="#"><span class="fa fa-plus"></span></a><div><h4><strong>Inquiry case example - Guns in the USA </strong></h4></div></div></div><p><img alt="" height="233" src="../../../ib/economics/images/textbook/market-failure/guns(1).jpg" width="666"> </p><hr class="hidden"><p>In 2018 39,773 people died from gun-related injuries in the US. A mixture of fatalities from suicide, violent crime and accidents. In the same year, 56 people died of gun-related injuries in the UK. Even when you allow for the fact the US has a population that is about 5 times that of the UK, the difference in gun-related deaths is very significant. </p><p>Consider the gun-ownership table opposite and bear in mind the rate of UK gun ownership is 5.1 per 100 residents.</p><h5><a href="../../../media/ib/economics/images/textbook/market-failure/negative-production-externalities/guns.pdf.html" target="_blank" title="Questions"><img class="ico" src="../../../thinkib/icons/question.png"> Worksheet questions</a></h5><h5><strong>Questions</strong></h5><p><strong>a. Explain why gun ownership leads to negative externalities. [4]</strong></p><section class="tib-hiddenbox"><p>The negative externalities associated with gun ownership include gun-related violent crime and accidents.</p></section><p><strong>b. Explain why external costs of consumption can lead to market failure. [10]</strong></p><section class="tib-hiddenbox"><p>Answers should include:<img alt="" height="216" src="../../../ib/economics/images/textbook/inquiry-case-example-questions/negative-consumption-externalities.jpg" style="float: right;" width="335"></p><ul><li>Definitions of external costs and market failure.</li><li>A diagram to show the external costs of consumption leading to market failure because there is an over-allocation of resources. This is shown in the diagram attached where the socially efficient output (MSB = MSC) at Q* is below the market output Q which leads to an over-allocation of resources.<hr class="hidden"></li><li>A real-world example of external costs of consumption or negative externalities in the firearms market in the US.</li><li>An explanation that the negative externalities associated with gun ownership occur because of the spillover costs on third parties where people are the victims of gun crime and accidents. This means the MSB curve is below the demand curve and there is an over-allocation of resources at the market output of Q in the diagram. This means the market is not producing at the socially efficient output where MSC = MSB and there is a welfare loss shown by the yellow triangle.</li></ul></section><h5><strong>Investigation</strong></h5><p><strong>Discuss with your class how significant the negative externalities associated with gun ownership in the US are? </strong></p></div><div class="blueBg"><h3><strong>External benefits or positive externalities<img alt="" height="291" src="../../../ib/economics/images/textbook/market-failure/car-factory.jpg" style="float: right;" title="https://blog.toyota.co.uk/toyota-manufacturing-tmuk-new-perspective" width="393"></strong></h3><p>External benefits are the spillover benefits that positively impact third parties as a result of the consumption or production of a good or service. They can be divided into two types: production external benefits and consumption external benefits.</p><h4><strong>Production external </strong><strong>benefits</strong></h4><p>Production external benefits occur as a result of the production of a good or service. For example, if a major new car factory opens in a town.</p><hr class="hidden"><h5><strong>Marginal private benefits</strong></h5><p>If a new car factory opens in a town it may employ local workers in the factory, use local businesses that provide services, and purchase raw materials and components from local producers. These are private benefits because they benefit the stakeholders directly associated with the location and operation of the car factory.</p><hr class="hidden"><h5><strong>External benefits</strong></h5><p>The new car factory may also bring external benefits when it is set up in the town. For example, the workers from the car factory spend their income by using services in the town such as shops and restaurants. The car factory may also set up training schemes for local workers which is a private benefit to those workers, but an external benefit when those skilled workers become available to other businesses in the area. The car factory could also improve local infrastructure when new roads are built and broadband speeds are increased. These developments will also benefit the community in the town</p><h5><strong>Production external benefits and market failure</strong></h5><hr class="hidden"><p><img alt="" src="../../../ib/economics/images/textbook/market-failure/external-benefits-production2.jpg" style="float: left; width: 450px; height: 333px;">The external benefits are not included in the supply curve (private cost) for the car factory, but when the external benefit is added to the supply curve, the marginal social cost curve exists to the right of the supply curve. This is shown in diagram 2.40. We assume that there are no other external costs and benefits when consuming the cars.</p><hr class="hidden"><p>In the car factory example, the market output exists where demand equals the supply of cars at price P and output Q in diagram 2.40. The socially efficient output where marginal social cost equals marginal social benefit at output Q* in diagram 2.40. The market has failed because the socially efficient output Q* is above the market output Q. There is an under-allocation of resources in the market.</p><hr class="hidden"><h5><strong>Welfare loss</strong></h5><p>The yellow shaded area in diagram 2.40 is the welfare loss to society because of the under-allocation of resources. The marginal social benefit from the car factory is greater than the marginal social cost at each level of output from Q to Q*. For extra units produced from Q to Q*, the benefit to society is greater than the cost. By only producing at Q society is missing out on the welfare more resources being allocated to the market would bring. </p><hr class="hidden"><h5><strong>Calculating the welfare loss (HL only)</strong></h5><p>The car factory's welfare loss can be calculated by working out the area of the yellow welfare loss triangle in diagram 2.40. In this case, the data from the car factory example is:</p><ul><li>Q: 50,000 units</li><li>Q*: 75,000 units</li><li>MSC at Q: $9,000</li><li>MSB at Q: $12,000</li></ul><p><strong>Calculation:</strong></p><p>(Q* - Q) x (MSB – MSC) / 2 = welfare loss</p><p>(75,000 - 50,000) x ($12,000 - $9,000) / 2 = $37.5 million </p></div><div class="pinkBg"><h4><strong>Inquiry case example <img alt="" height="295" src="../../../ib/economics/images/textbook/market-failure/macau-bridge.jpg" style="float: right;" width="445"></strong></h4><h4><strong>The Hong Kong–Zhuhai–Macau Bridge</strong></h4><p>On 24 October 2018, the Hong Kong–Zhuhai–Macau Bridge was opened. It is a 55km (34 miles) bridge that included an undersea tunnel and four artificial islands. It is the longest sea-crossing by a bridge in the world. The project cost $18.8 billion.</p><hr class="hidden"><p>The improved connectivity brought about by the bridge will bring significant social benefits to Hong Kong and Macau. Sectors such as tourism, finance and logistics will see huge advantages from the bridge.</p><p><a href="../../../media/ib/economics/images/textbook/market-failure/negative-production-externalities/hk-bridge.pdf.html" target="_blank" title="Questions"><img class="ico" src="../../../thinkib/icons/question.png"> Worksheet questions</a></p><hr class="hidden"><p><strong>Questions</strong></p><p><strong>a. Outline two private benefits that might arise from the Macau bridge. [4]</strong></p><section class="tib-hiddenbox"><p>Private benefits would be gained by any two of the following stakeholders:</p><ul><li>Car drivers who can travel more quickly between Hong Kong and Macau</li><li>Workers who are employed on the bridge</li><li>The profits earned by the construction firms that built the bridge</li><li>Construction workers who were paid to build the bridge.</li></ul></section><p><strong>a. Explain how positive externalities resulting from the Macau bridge might affect the tourism sector in Macau. [4]</strong></p><section class="tib-hiddenbox"><ul></ul><p>The positive externalities that arise from the Macau bridge are the spillover benefits that affect third parties. In this case, it would be the tourism sector in Macau. If it is quicker and easier for visitors to travel to Macau from Hong Kong then this could increase the number of tourists. This would be good for businesses in Macau like hotels, restaurants, bars and leisure facilities who will achieve higher sales and profits.</p></section><h5><strong>c. Explain why positive externalities are considered to be a market failure. [10]</strong></h5><section class="tib-hiddenbox"><p><strong>Answers might include:</strong><img alt="" src="../../../ib/economics/images/textbook/market-failure/negative-production-externalities/bridge.jpg" style="float: right; width: 400px; height: 304px;"></p><ul><li>Definition of positive externalities and market failure.</li><li>A diagram to show how the external benefits from the construction of the Macau bridge mean that the MSC curve is below the MPC curve which means the socially efficient level of output where MSB equals MSC at Q* is below the market output of Q. <hr class="hidden"></li><li>An explanation of how the Macau bridge will lead to external benefits such as higher levels of tourism in Macau along with improved levels of business efficiency as workers and freight can be moved more quickly between Macau and Hong Kong.</li><li>An explanation of that the external benefits associated with the Macau bridge will mean that in a free market situation the bridge may not have been built and the socially efficient level of output would not be achieved and this would lead to a market failure. The welfare loss associated with the Macau bridge is shown by the yellow shaded area in the diagram.</li></ul></section><h5><strong>Investigation</strong></h5><p><strong>Research another infrastructure project that might have similar private and external benefits.</strong></p></div><div class="blueBg"><h4><strong>Consumption external benefits </strong></h4><p>Consumption external benefits occur when a good or service is consumed and there are spill-over benefits on third parties. For example, we often see external benefits in the market for healthcare goods and services when there are benefits to people beyond those who consume healthcare goods. </p><h5><strong>Marginal private benefits</strong></h5><p>For example, when people purchase a flu vaccination they benefit because they are less likely to catch the flu. This is a private benefit to these consumers, and each extra unit of the vaccination consumed is a marginal private benefit.</p><hr class="hidden"><h5><strong>Marginal social benefit</strong></h5><p>Other people (third parties) in society also benefit because with fewer flu carriers, there are fewer people to catch the flu from. The people who are less likely to catch the flu because of other people’s vaccinations represent an external benefit from the consumption of the flu vaccine.</p><hr class="hidden"><h5><strong>Consumption external benefits and market failure</strong></h5><p><img alt="" height="319" src="../../../ib/economics/images/textbook/market-failure/external-benefits-consumption2.jpg" style="float: left;" width="430">The demand curve represents the private benefits from the flu vaccine. When we add the external benefits, we get the marginal social benefit curve. If we assume that there are no other externalities associated with the production of the flu vaccine, then the supply of the marginal private cost curve equals the marginal social cost curve. </p><hr class="hidden"><p>Diagram 2.41 illustrates the market for the flu vaccine. The market output is at the point where demand equals supply or marginal private benefit equals marginal private cost at output Q. The socially efficient level of output is where marginal social cost equals marginal social benefit at Q*. This means that the market output Q is below the socially efficient output at Q* and there is an under-allocation of resources.</p><hr class="hidden"><h5><strong>Welfare loss</strong></h5><p>The yellow shaded triangle in diagram 2.41 represents the welfare loss to society from the flu vaccination. The marginal social benefit from the consumption of the vaccine is greater than the marginal social cost at each level of output from Q to Q*. This means from each extra unit of vaccine consumed between Q and Q*, the benefit to society is greater than its cost. By only producing at Q, society is missing out on the welfare from more resources being allocated to the market. </p><hr class="hidden"><p>The vaccine's welfare loss can be calculated by working out the area of the yellow welfare loss triangle in diagram 2.41. In this case, the data from the vaccine example is:</p><ul><li>Q: 1.5 million units</li><li>Q*: 5.6 million units</li><li>MSB at Q: $8.00</li><li>MSC at Q: $2.50</li></ul><p><strong>Calculation:</strong></p><p>(Q* - Q) x (MSB – MSC) / 2 = welfare loss</p><p>(5.6m - 1.5m) x ($8.00 - $2.50) / 2 = $11.275m</p></div><div class="pinkBg"><div class="panel panel-has-footer" style="box-shadow: rgba(17, 34, 51, 0.3) 0px 10px 30px -15px; border-color: rgb(39, 45, 105);"><div class="panel-heading" style="background-color: rgb(39, 45, 105);"><a class="expander pull-right" href="#"><span class="fa fa-plus"></span></a><div><h4><strong>Inquiry case example - The importance of developing a vaccine for COVID19</strong></h4></div></div><strong><img alt="" height="314" src="../../../ib/economics/images/textbook/market-failure/vaccine.jpg" style="float: right;" width="354"></strong></div><p>A vaccine for COVID-19 could be ready as soon as September, according to a professor from Oxford University. Sarah Gilbert is a professor of vaccinology and says that she is "80% confident" a COVID-19 vaccine being developed by her team will work. Professor Gilbert has said that human trials are set to take place within the next fortnight and that she has been working seven days a week to get a vaccine rushed through.</p><p>The development of a vaccine is seen as crucial in the global fight against COVID19. Not only will the vaccine benefit those who will take it but for the wider population as well. The World Health Organisation has estimated that for each person who contracts the virus they will pass it on to 3 others. Sarah Gilbert’s team at Oxford is part of a global effort to find a vaccine for coronavirus, which has killed hundreds of thousands of people around the world, according to Johns Hopkins University.</p><hr class="hidden"><h5><a href="../../../media/ib/economics/images/textbook/market-failure/negative-production-externalities/vaccine.pdf.html" target="_blank" title="Questions"><img class="ico" src="../../../thinkib/icons/question.png"> Worksheet questions</a></h5><h5><strong>Question</strong></h5><p><strong>Explain why the Covid19 vaccine is an example of market failure. [10]</strong></p><section class="tib-hiddenbox"><p>Answers should include:<img alt="" height="284" src="../../../ib/economics/images/textbook/inquiry-case-example-questions/positive-consumption-externalities.jpg" style="float: right;" width="381"></p><ul><li>Definitions of market failure and positive consumption externalities. </li><li>A diagram to show how the external benefits from the consumption of the vaccine mean that the MSB curve is above the MPB curve which means the socially efficient level where MSB equals MSC at Q* is below the market output of Q. The welfare loss associated with the vaccine is shown by the yellow shaded area in the diagram.</li></ul><hr class="hidden"><ul><li>An explanation that the positive externalities from the Covid19 vaccine result from the lower infection rates from vaccinated people who do not pass the virus onto others which reduces overall levels of covid. The positive externalities from the vaccine mean MSB is above MPB. This means there is an under-allocation of resources in a free market for the Covid19 vaccine where output is at the point where MPB equals MPC which is below the socially efficient output where MSC equals MSB. Because the MSB does not equal MSC the market fails and society's welfare is not maximised.</li></ul></section><h5><strong>Investigation</strong></h5><p><strong>Investigate the external benefits of a vaccine against another disease. </strong></p></div><div class="panel panel-has-footer" style="box-shadow: rgba(51, 0, 0, 0.3) 0px 10px 30px -15px; border-color: rgb(124, 7, 21);"><div class="panel-heading" style="background-color: rgb(124, 7, 21);"><a class="expander pull-right" href="#"><span class="fa fa-plus"></span></a><div><p>Thinking about a key concept - Sustainability</p></div></div><div class="panel-body"><div><p>The theory of negative externalities can be closely related to sustainability. The Pacific Gas and Electric Company (PG&E) case example used in this chapter raises interesting questions about sustainability. In the case example, the company may have been looking to produce cheaper energy in the present by not considering the impact of their activities on the local environment in Hinkley, California. The long-term consequences of the pollution produced by the plant would have had a devastating health effect on future generations if action was not taken to regulate them.</p><p><strong>Do you think people are happy to pay more for their energy now if it means not negatively affecting future generations?</strong></p></div></div></div><div class="panel panel-has-footer" style="box-shadow: rgba(17, 34, 51, 0.3) 0px 10px 30px -15px; border-color: rgb(39, 45, 105);"><div class="panel-heading" style="background-color: rgb(39, 45, 105);"><a class="expander pull-right" href="#"><span class="fa fa-plus"></span></a><div><h3>Now test yourself</h3></div></div></div><div class="tib-quiz" data-quiz-id="1012" data-structure="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" data-score-answers="6d4a526a457a48584f763758344a7649472f76324c53614b78524c393439595570496d5a5971374b38686f3d"><div class="exercise"><div class="q-question"><p>Which of the following statements best describes market failure?</p></div><div class="q-answer"><p><label class="radio" data-answer="8b13a5ca97973362b079734701c82218"><input type="radio"><span> Resource allocation that does not maximise welfare in society</span></label></p><p><label class="radio" data-answer="1100a5c2b8e36808559994d85d1c46b1"><input type="radio"><span> Widening income inequality</span></label></p><p><label class="radio" data-answer="faf6ea1d63846b6d7e2f9e109b86e5f6"><input type="radio"><span> Resources are not being used efficiently in society</span></label></p><p><label class="radio" data-answer="bb90a7593b6c539dc5fb9463fdbec430"><input type="radio"><span> Demand does not equal supply in a market</span></label></p></div><div class="q-explanation"><p> </p></div><div class="actions"><span class="score" data-score="0"></span><button class="btn check"><i class="fa fa-check-square-o"></i> Check</button></div></div><p> </p><div class="exercise"><div class="q-question"><p>Which of the following statements is not true about negative externalities?</p></div><div class="q-answer"><p><label class="radio" data-answer="6392e3f359568cdfaf735a43fca65708"><input type="radio"><span> Society can experience a welfare loss because of them</span></label></p><p><label class="radio" data-answer="4d47c2a1c464be697b76ce7578701add"><input type="radio"><span> Pollution from a factory often causes negative externalities</span></label></p><p><label class="radio" data-answer="2c3616c5b36b55af972c3ec31aad8978"><input type="radio"><span> They result in an under-allocation of resources</span></label></p><p><label class="radio" data-answer="b384ae3105f8b40d8cd6ce9ee0534455"><input type="radio"><span> MSC is greater than MSB at the market output</span></label></p></div><div class="q-explanation"><p>Negative externalities cause an over-allocation of resources.</p></div><div class="actions"><span class="score" data-score="0"></span><button class="btn check"><i class="fa fa-check-square-o"></i> Check</button></div></div><p> </p><div class="exercise"><div class="q-question"><p>Which of the following goods or services is the most likely to lead to negative externalities of consumption?</p></div><div class="q-answer"><p><label class="radio" data-answer="43ad94475e47054ed13993deb44e9977"><input type="radio"><span> Mobile phones</span></label></p><p><label class="radio" data-answer="83007ce8bd574666cec0642e915d74bf"><input type="radio"><span> Solar panels</span></label></p><p><label class="radio" data-answer="269dca709f18643ae30323672c168ef5"><input type="radio"><span> An art gallery</span></label></p><p><label class="radio" data-answer="0afe1ec73099910e6d5b8aed8608d837"><input type="radio"><span> Organic vegetables</span></label></p></div><div class="q-explanation"><p>Mobile phones have consumption and production negative externalities associated with them.</p></div><div class="actions"><span class="score" data-score="0"></span><button class="btn check"><i class="fa fa-check-square-o"></i> Check</button></div></div><p> </p><div class="exercise"><div class="q-question"><p>In the diagram, which of the following is not true?</p><p> </p><p><img alt="" height="231" src="../../../ib/economics/images/textbook/mc-questions/negative-externalities.jpg" style="float: left;" width="332"></p><p> </p><p> </p><p> </p><p> </p><p> </p><p> </p><p> </p><p> </p><p> </p></div><div class="q-answer"><p><label class="radio" data-answer="524f4855e2b65f08072f6b2410262310"><input type="radio"><span><span class="radio"><span class="radio">Arrow A is the external cost</span></span></span></label></p><p><label class="radio" data-answer="ae35417f15a78c217464e50bb4588d3a"><input type="radio"><span> The consumer and producer surplus are not maximised at point C </span></label></p><p><label class="radio" data-answer="5f2951c47db3109a3fba83bc66002e7b"><input type="radio"><span> Point D is the socially efficient output </span></label></p><p><label class="radio" data-answer="3803bb544d132ed1363df59576fede62"><input type="radio"><span> Supply equals marginal private cost at B </span></label></p></div><div class="q-explanation"><p> The market is in equilibrium (D = S) at point C, so the consumer and producer surpluses are maximised.</p></div><div class="actions"><span class="score" data-score="0"></span><button class="btn check"><i class="fa fa-check-square-o"></i> Check</button></div></div><p> </p><div class="exercise"><div class="q-question"><p>What is the best description of the welfare loss associated with a negative externality? It is the:</p></div><div class="q-answer"><p><label class="radio" data-answer="3cd6aefcb0918e6786e26ed039fd95f6"><input type="radio"><span> Range of output where MSC < MSB</span></label></p><p><label class="radio" data-answer="5713ddc5e6afd8fd4fa48bab0a9ce146"><input type="radio"><span> Point where MPC = MPB</span></label></p><p><label class="radio" data-answer="abd7824501ce6312d06bf7a732c343b3"><input type="radio"><span> Range of output where MSC > MSB</span></label></p><p><label class="radio" data-answer="8781bcea7c7420d64d15dd04e8141b5e"><input type="radio"><span> Point where MSB = MSC</span></label></p></div><div class="q-explanation"><p>The welfare loss of a negative externality occurs when MSC > MSB.</p></div><div class="actions"><span class="score" data-score="0"></span><button class="btn check"><i class="fa fa-check-square-o"></i> Check</button></div></div><p> </p><div class="exercise"><div class="q-question"><p>Which of the following goods and services is the least likely to be associated with significant consumption positive externalities?</p></div><div class="q-answer"><p><label class="radio" data-answer="883f18b58e921497754775c276521237"><input type="radio"><span> Measles vaccine</span></label></p><p><label class="radio" data-answer="cac9d6d4655c6b18c3754880259011f9"><input type="radio"><span> New primary school </span></label></p><p><label class="radio" data-answer="2d365e421520ea39d539527b81cd069e"><input type="radio"><span> Cinema </span></label></p><p><label class="radio" data-answer="cc2ab63fd3eb564be64b4f21bd083bc7"><input type="radio"><span> Hospital</span></label></p></div><div class="q-explanation"><p>Cinemas may be associated with some positive externalities but they will not be as significant as the other options.</p></div><div class="actions"><span class="score" data-score="0"></span><button class="btn check"><i class="fa fa-check-square-o"></i> Check</button></div></div><p> </p><div class="exercise"><div class="q-question"><p>Which of the following is untrue in the diagram?</p><p><img alt="" height="246" src="../../../ib/economics/images/textbook/mc-questions/negative-consumption-externalities(1).jpg" style="float: left;" width="334"></p><p> </p><p> </p><p> </p><p> </p><p> </p><p> </p><p> </p><p> </p></div><p> </p><div class="q-answer"><p><label class="radio" data-answer="0df8ae9156bcbc9cc53631e595016f0f"><input type="radio"><span> There is an under allocation of resources</span></label></p><p><label class="radio" data-answer="d2153ab5fdfa444c2ebb704e0a785daa"><input type="radio"><span> It shows negative consumption externalities</span></label></p><p><label class="radio" data-answer="a41bb69a98928dd9a04c601e3b63e80d"><input type="radio"><span> The consumer and producer surplus are maximised at output Q</span></label></p><p><label class="radio" data-answer="4d3da1a45fd9c164f94eb2644e5776cf"><input type="radio"><span> The welfare loss is the yellow triangle</span></label></p></div><div class="q-explanation"><p>There is an overallocation of resources in a free market because the socially efficient output where MSB=MSC is at Q* which is below the market output at Q.</p></div><div class="actions"><span class="score" data-score="0"></span><button class="btn check"><i class="fa fa-check-square-o"></i> Check</button></div></div><p> </p><div class="exercise"><div class="q-question"><div class="q-question">The diagram shows the market for a good.<hr class="hidden"><img alt="" src="../../../ib/economics/images/textbook/mc-questions/positive-externalities.jpg" style="width: 309px; height: 234px; float: left;"><hr class="hidden"></div><div class="q-question">The difference between A and B at output Q is:</div></div><div class="q-answer"><p><label class="radio" data-answer="5512cfc10d9c988bcf918067351f3159"><input type="radio"><span> External cost</span></label></p><p><label class="radio" data-answer="2b184d4067bd20eaab23311923d296db"><input type="radio"><span> Producer surplus</span></label></p><p><label class="radio" data-answer="86894199de750ba026f1139a911b39e1"><input type="radio"><span> External benefit</span></label></p><p><label class="radio" data-answer="6b4f7b62e0c67175b052b7a8bd10bffd"><input type="radio"><span> Consumer surplus</span></label></p></div><div class="q-explanation"><p>The difference A and B at output Q is where MSB is greater than MPB and this is the external benefit. </p></div><div class="actions"><span class="score" data-score="0"></span><button class="btn check"><i class="fa fa-check-square-o"></i> Check</button></div></div><p> </p><div class="exercise"><div class="q-question"><p>The external benefits of healthcare affect third party individuals outside those people who directly benefit from the healthcare they consume. This means the:</p></div><div class="q-answer"><p><label class="radio" data-answer="c3dfe75c82a79e036749ea0b233ae689"><input type="radio"><span> Marginal social benefit is greater than marginal private benefit</span></label></p><p><label class="radio" data-answer="5964d419ec551584adf23713b56bdb76"><input type="radio"><span> Marginal social cost equals marginal social benefit</span></label></p><p><label class="radio" data-answer="a8156394bd120b7eca379b242cdab1f7"><input type="radio"><span> There are no negative externalities of consumption </span></label></p><p><label class="radio" data-answer="b96fe4a14fe70881834e8e6840ca0a9f"><input type="radio"><span> The market for healthcare is at the socially efficient level</span></label></p></div><div class="q-explanation"><p>When there are external benefits of consumption it means social benefits are greater than private benefits.</p></div><div class="actions"><span class="score" data-score="0"></span><button class="btn check"><i class="fa fa-check-square-o"></i> Check</button></div></div><p> </p><div class="exercise"><div class="q-question"><p>The data shows the forecasted costs and benefits of building a new bridge:</p><ul><li>Private costs <dollar>$</dollar>150m</li><li>External costs <dollar>$</dollar>40m</li><li>Private benefits <dollar>$</dollar>130m</li><li>External benefit <dollar>$</dollar>20m</li></ul><p>From the data, it can be concluded that:</p></div><div class="q-answer"><p><label class="radio" data-answer="1c6b6af0698d3371ccc775d866bf53f1"><input type="radio"><span> Social benefits are greater than the social costs</span></label></p><p><label class="radio" data-answer="02721248f6121841c312c6328a5e4e9e"><input type="radio"><span> Social costs are greater than the social benefits</span></label></p><p><label class="radio" data-answer="f45e4d8dd7d987714247df7d09b85af8"><input type="radio"><span> Society would be better off if the bridge was built</span></label></p><p><label class="radio" data-answer="813ef548ccb9a1838161fe8c7ac84adb"><input type="radio"><span> Social benefit equal <dollar>$</dollar>20m</span></label></p></div><div class="q-explanation"><p>Social costs (<dollar>$</dollar>150m + <dollar>$</dollar>40m = <dollar>$</dollar>190m) is greater than the social benefits (<dollar>$</dollar>130m + <dollar>$</dollar>20m = <dollar>$</dollar>150m)</p></div><div class="actions"><span class="score" data-score="0"></span><button class="btn check"><i class="fa fa-check-square-o"></i> Check</button></div></div><p> </p><div class="totals"><span class="score">Total Score: </span><button class="btn btn-success check-total"><i class="fa fa-check-square-o"></i> Check</button></div></div><hr><script>document.querySelectorAll('.tib-teacher-only').forEach(e => e.remove());</script>
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