A farming company pays a contractor to install drainage on its land to protect its crops from flooding. The drainage also reduces flood damage to homes in a nearby village.
Explain why the company may carry out less drainage work than would be best for society.
127 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.