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Economics A Level (DONEEEEEEE)

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Question:

How can Overconsumption come due to Ignoring Negative Consumption Externalities? What is the Welfare Loss?

Author: eric_galvao

How can Overconsumption come due to Ignoring Negative Consumption Externalities? What is the Welfare Loss?



Answer:

-Let MPC be MSC. But have MPB and MSB different Lines -MPB would be Higher than MSB here, meaning that the Quantity would be Overconsumed and the Price would be too High to that of Society's Demands. This means MPB will Intersect with MPC at Point A, and MSB will Intersect with MSC at Point B. -This means the Welfare Loss will be Point A, Point B and the External Benefit.


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-Let MPC be MSC. But have MPB and MSB different Lines
-MPB would be Higher than MSB here, meaning that the Quantity would be Overconsumed and the Price would be too High to that of Society's Demands. This means MPB will Intersect with MPC at Point A, and MSB will Intersect with MSC at Point B. 
-This means the Welfare Loss will be Point A, Point B and the External Benefit.
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