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Economics A Level

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Question:

How can Under Consumption come due to Ignoring Positive Consumption Externalities? -What is the Welfare Gain

Author: go kys

How can Under Consumption come due to Ignoring Positive Consumption Externalities?
-What is the Welfare Gain



Answer:

-Let MPC = MSC. But MPB have Different Line to MSB -Socially Optimal Point is when MSB = MSC. [Point A] -Free Market Point will be when MPB = MPC [Point B] -There is an Under Consumption as MSB is further Right than MPB, and the Price is Lower than what Society wants -Welfare Gain [Gain to Society LOST by ignoring Externality] will be Point A, Point B, and the External Benefit


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-Let MPC = MSC. But MPB have Different Line to MSB
-Socially Optimal Point is when MSB = MSC. [Point A]
-Free Market Point will be when MPB = MPC [Point B]
-There is an Under Consumption as MSB is further Right than MPB, and the Price is Lower than what Society wants
-Welfare Gain [Gain to Society LOST by ignoring Externality] will be Point A, Point B, and the External Benefit
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Author

go kys
go kys