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External Benefits and Welfare Gain

Study Edexcel Economics external-benefit questions by using MSB and MPB diagrams to explain underconsumption, social optimum output and welfare gain.

Syllabus
2019
Course
Economics YEC11
Level
AS

Exam points

  • Draw MSB above MPB, showing that the market equilibrium quantity is below the social optimum quantity.
  • Explain underconsumption using private benefits, external benefits and the gap between market and social output.
  • Identify the welfare gain area and evaluate external benefits using education, vaccination or other contexts.

1.3.5.2d - use of diagrams, using marginal analysis, to illustrate: • the external benefits from question 1

[Maximum number: 1]

The diagram shows the market for museum visits in Spain.

Costs and benefits

Costs and benefits

Which one of the following can be deduced from this diagram?

A

The market equilibrium quantity is at Q2\mathrm{Q}_{2}

B

The social optimum quantity is at Q1\mathrm{Q}_{1}

C

The welfare gain area would be equal to UVW

D

The welfare gain area would be equal to UWX

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