Table 1 gives information about two economic activities.
| Activity | Description | Private figure | Social figure |
|---|---|---|---|
| P | A manufacturer develops a new production technique while making its goods. Rival firms and suppliers are affected by the technique, and no payment is made between them and the manufacturer. | Private benefit: £52,000 per year | Social benefit: £61,000 per year |
| Q | A household hires powered garden equipment for an evening. Neighbours are affected and receive no compensation. | Private cost: £24 per use | Social cost: £31 per use |
Which option correctly classifies both externalities and predicts the likely market outcome?
P creates a negative production externality and is likely to be over-produced, while Q creates a positive consumption externality and is likely to be under-consumed
P creates a positive production externality and is likely to be under-produced, while Q creates a negative consumption externality and is likely to be over-consumed
P creates a positive production externality and is likely to be over-produced, while Q creates a negative consumption externality and is likely to be under-consumed
P creates a positive consumption externality and is likely to be under-consumed, while Q creates a negative production externality and is likely to be over-produced
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.