Paper 3 Essay

Question 1

Body paragraph 1

Answer 1

1. MPB = MPC, price mechanism which leads to efficient production / consumption.

Terminology = efficiency

2. There is social efficient production / consumption level at MSB = MSC.
3. Divergence between MPB and MSB (MEB / MEC) is due to +ve / -ve externalities. (example related to the question).
4. Market failure is due to underconsumption, which leads to underallocation of resources, which leads to DWL.

Question 2

Policy