MARKET FAILURE

• in what two senarios does MSB≈MPB ? ie demand curve

  Positive production externalities

  Negative production externalities
• In positive production externalities, what curve is higher ?


  MPC is higher than MSC

  as the costs to society are lower than private costs - tree plantations (carbon sink)
• in negative production externalities which curve is higher?

  MSC is higher than MPC (s) due to the existence of external costs.
• in negative production externalities what curve diverges and why?

  MSC as with extra output there is more pollution.
• for what 4 market failures is the MSC≈MPC curve upward sloping?


  positive consumption externalities

  negative consumption externalities

  demerit goods

  merit goods
• For what two diagrams is MSB higher than MPB?

  positive consumption externalities

  merit goods
• for what two market failures is MPB larger than MSB?

  negative consumption externalities

  demerit goods
• what causes merit and demerit goods to exist?

  information failure
• where does the market optimal level?

  MSC=MSB
• longest side of DWL is the difference between?

  MSB and MSC