A municipal council is evaluating four proposed local infrastructure projects. Due to a restricted budget, only one project can be funded. The council's economists have estimated the lifetime private and external costs and benefits of each scheme, as detailed in the table below:
| Urban Wetland Park (£ million) | Municipal Waste-to-Energy Plant (£ million) | Subsidised Rooftop Solar Scheme (£ million) | Commuter Cycle Superhighway (£ million) | |
|---|---|---|---|---|
| Private benefits | 15 | 180 | 45 | 110 |
| Private costs | 35 | 140 | 60 | 130 |
| Positive externalities | 95 | 30 | 115 | 125 |
| Negative externalities | 5 | 85 | 25 | 15 |
Which project should the council adopt if its objective is to maximise net social welfare?
Urban Wetland Park
Municipal Waste-to-Energy Plant
Subsidised Rooftop Solar Scheme
Commuter Cycle Superhighway
378 exam-style questions on AQA A Level Economics 1.8 The market mechanism, market failure and government intervention in markets, covering 1.8.1 How markets and prices allocate resources, 1.8.2 The meaning of market failure, 1.8.3 Public goods, private goods and quasi-public goods, 1.8.4 Positive and negative externalities in consumption and production, 1.8.5 Merit and demerit goods, 1.8.6 Market imperfections, 1.8.7 Competition policy (A-level only), 1.8.8 Public ownership, privatisation, regulation and deregulation of markets (A-level only), 1.8.9 Government intervention in markets, and 1.8.10 Government failure. Each one has a worked solution and a mark scheme showing where the marks go.