Unit 2.8 · Market Failure: Externalities and Common Pool Resources
Negative Externalities of Production and Consumption
AO2AO4Diagram required
Syllabus Requirement
Situations where third parties incur costs not reflected in market prices, resulting in overproduction of demerit goods.
Assessment Objectives
AO2Application and Analysis
AO4Use of Appropriate Skills
Summary
This topic examines negative externalities associated with production and consumption, which occur when the actions of individuals or firms impose costs on third parties not involved in the transaction. Understanding these external costs is essential for analyzing market failures and the overall impact on society.
