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Economics A Level (DONEEEEEEE)

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Question:

How can Underproduction come due to Ignoring Positive Production Externalities? What is the Welfare Gain?

Author: eric_galvao

How can Underproduction come due to Ignoring Positive Production Externalities? What is the Welfare Gain?



Answer:

-Let MPB = MSB. But MPC be higher than MSC. This means that the MPC will be Underproduced when compared to MSC as there is Less Quantity, at a Higher Price. -So therefore wherever MPC intersects is Point A, and MSC intersects is Point B. -The Welfare Gain is Point A, Point B, External Cost.


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-Let MPB = MSB. But MPC be higher than MSC. This means that the MPC will be Underproduced when compared to MSC as there is Less Quantity, at a Higher Price.
-So therefore wherever MPC intersects is Point A, and MSC intersects is Point B. 
-The Welfare Gain is Point A, Point B, External Cost.
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