Unit 2.8 · Market Failure: Externalities and Common Pool Resources
Negative Externalities of Production and Consumption
AO2AO4Diagram required
Syllabus Requirement
Situations where third parties incur costs not reflected in market prices, resulting in overproduction of demerit goods.
Assessment Objectives
AO2Application and Analysis
AO4Use of Appropriate Skills
Summary
This topic discusses negative externalities associated with production and consumption, particularly focusing on common pool resources (CPRs). These resources are not owned by individuals, leading to overuse and potential depletion, which can result in market failure. Understanding these concepts is important for analyzing how externalities affect economic efficiency and sustainability.