A seed company is choosing between two research projects to develop new crop-growing methods. Both projects would cost the same, and the company can fund only one of them. Other farms could use the new methods without paying for the research. Table 1 shows the estimated private benefit to the company and the social benefit of each project.
Table 1
| Project | Private benefit (£000) | Social benefit (£000) |
|---|---|---|
| A | 120 | 200 |
| B | 180 | 195 |
Using Table 1, calculate the external benefit of each project.
Using Table 1, explain which project the company is likely to choose and why this choice could be a misallocation of resources.
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.