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1.6 Market failure

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Question 27

Two activities are described below. The figures are per hectare sprayed and per home insulated.

ActivityNumber of unitsPrivate cost or benefit per unitSocial cost or benefit per unit
A farm spraying pesticide on crops900 hectaresCost £70Cost £86
Households insulating their lofts120 homesBenefit £1,200Benefit £1,320

What conclusion follows from these figures about the size of the two external effects?

[1]
A

Loft insulation has the larger external effect, at £158,400 compared with £77,400

B

The two external effects are the same size, at £14,400 each

C

Pesticide spraying has the larger external effect, at £14,400 compared with £120

D

Loft insulation has the larger external effect, at £120 compared with £16

Markscheme

1.6 Market failure Questions

  1. GCSE
  2. /Economics
  3. /1.6 Market failure

83 exam-style questions on AQA GCSE Economics 1.6 Market failure, covering 1.6.1a Market failure as misallocation of resources, 1.6.1b Government intervention, 1.6.2a Defining externalities, and 1.6.2b Positive and negative externalities. Each one has a worked solution and a mark scheme showing where the marks go.

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