A subsidy increases consumption of a good with positive externalities, but much of the payment goes to consumers who would have bought it anyway. What is the main concern?
The good must now create a negative externality
The subsidy cannot affect supply
State provision would have no cost
The additional external benefit may be small relative to the opportunity cost of public funds
31 exam-style questions on OCR GCSE Economics 3.8 Limitations of markets, covering 3.8.1 Positive and negative externalities, 3.8.2 Policies to correct externalities, 3.8.3 Impact of externality policies, and 3.8.4 Costs and benefits of externality policies. Each one has a worked solution and a mark scheme showing where the marks go.