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Economics (AS & A Level) · Feb / March 2021 · Paper 32 · Question 2

9708Private costs and benefits, externalities and social costs and benefits

The diagram shows the private and social marginal costs and benefits curves for the antibiotics market. The market equilibrium is at point X. Why does market failure occur?

  1. AThere is overconsumption and overpricing.
  2. BThere is overproduction and under-pricing.
  3. CThere is underconsumption and under-pricing.
  4. DThere is underproduction and overpricing.

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Correct answer: C. There is underconsumption and under-pricing.

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