Economics (AS & A Level) · Oct / Nov 2025 · Paper 31 · Question 6

The diagram shows market failure caused by negative production externalities. [Diagram: price on vertical axis, quantity on horizontal axis. Curves: MSC (upward sloping, steeper), S = MPC (upward sloping), D = MPB = MSB (downward sloping). Points: W on MSC above intersection, V at intersection of MSC and D at price P2 and quantity Q2, X at intersection of S=MPC and D at price P1 and quantity Q1, Y on S=MPC below V at quantity Q2.] Identify the correct combination of the result of the market failure and the area on the diagram that shows deadweight welfare loss.

1. Aoverproduction — VWX
2. Boverproduction — XYV
3. Cunderproduction — VWX
4. Dunderproduction — XYV

As printed in the paper