At the current level of output of a manufactured chemical, the marginal social cost of production exceeds the marginal private cost. Additionally, the marginal private benefit of consuming this chemical exceeds the marginal social benefit. Consequently, in an unregulated market, there will be:
a misallocation of resources.
positive externalities in both production and consumption.
an understatement of the true private costs of production.
a socially optimal level of output.
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.