Th1.3: Positive Consumption Externalities

Question 1

When do positive externalities of consumption occur?

Answer 1

when social benefits are greater than social costs

Question 2

Refer to PP

Look at Graph 19. When left to its own devices, where would the market produce?

Answer 2

MPB = MPC

Question 3

Refer to PP

Look at Graph 19. Where would the market produce if it considered all the benefits?

Answer 3

MSB = MSC

Question 4

What has the failure of the market to consider the external benefits led to?

Answer 4

the misallocation of resources and so there is an underproduction of Q1-Q2, leading to a welfare loss of the shaded area
See Graph 19

Question 5

Why does the difference between MPB and MSB grow?

Answer 5

since external benefits grow the more that people undertake the activity

Question 6

Give two examples of positive consumption externalities

Answer 6

healthcare and education

Question 7

DRAW GRAPH 19 THREE TIMES

Answer 7

ACTUALLY DO IT I STG