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Unformatted text preview: ▽ Production marginal private cost < marginal social cost e.g. ×Air and water pollution ×Noise ×Crime ▽ Consumption marginal private benefit > marginal social benefit eg. ×Cigarettes smoking ×Drunk driving b) Use a diagram to explain why the existence of externalities means that the market will provide an inefficient outcome? c) In the case of unfavourable production externalities, what might governments do to correct the inefficiency of the market? ) Legislation ) Specific taxes ) Property rights and individual bargaining (Coase Theorem)...
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- Externalities, Externality, Marginal private benefit, Marginal social benefit, marginal social cost, marginal private cost