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(Total Marks: 34)

Positive Externalities Assignment

1.

The diagram shows the market for vaccination. There are no external costs and no government
intervention.

Which of the following is correct?

A: the market equilibrium output exceeds the social optimum output


B: there is an under-consumption of vaccinations
C: there are no external benefits
D: at the market equilibrium output, marginal social costs exceeds marginal social benefits.

Answer (1)
Explanation (3)

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2. Which of the following methods of government intervention could help correct market failure?

A State provision of healthcare


B Taxation of goods which yield high external benefits
C Abolition of the tradable pollution permit scheme
D Provision of subsidies to goods which yield high external costs.

Answer (1)
Explanation (3)

2
3.

The diagram shows the market for university education. Assume there are no external costs. Which of the
following is true?

A: The free market equilbirium quantity exceeds the social optimum quantity
B: There is a market failure at quantity Qe
C: The triangle of welfare gain is XYV
D: The marginal external benefit remains constant at all quantities

Answer (1)
Explanation (3)

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4.

The diagram shows a free market for vaccination in which the current equilibrium level of output is X and price
Pe. At this level of output there is

A: an external cost
B: market failure
C: an excess supply
D: government failure

Answer (1)
Explanation (3)

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5.

The diagram shows the market for vaccinations. Assume there are no external costs. Which of the following
is true?

A: The free market equilibrium quantity exceeds the social optimum quantity.
B: The area of welfare loss is XTYZ
C: An increase in quantity from the free market equilbriumwill lead to a net welfare gain.
D: At the free market lequilbrium quantity, marginal social cost exceeds marginal social benefit.

Answer (1)
Explanation (3)

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6.

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Evaluate the likely private benefits and external benefits of education. Illustrate your answer with an
appropriate diagram (14)