Skip to main content

Table of Contents

  1. Topic pack - Microeconomics - introduction
  2. 1.1 Competitive Markets: Demand and Supply
  3. 1.1 Competitive Markets: Demand and Supply - notes
  4. 1.1 Competitive markets - questions
  5. 1.1 Competitive markets - simulations and activities
  6. 1.2 Elasticities
  7. 1.2 Elasticities - notes
  8. Section 1.2 Elasticities - questions
  9. Section 1.2 Elasticities - simulations and activities
  10. 1.3 Government intervention
  11. 1.3 Government Intervention - notes
  12. 1.3 Government intervention - questions
  13. 1.3 Government intervention - simulations and activities
  14. 1.4 Market failure
  15. 1.4 Market failure - notes
    1. The meaning of externalities
    2. Types of externalities
    3. How do externalities affect allocative efficiency?
    4. Negative externalities of production
    5. Negative externalities of consumption
    6. The economic theory of traffic congestion
    7. Demerit goods
    8. Government responses - demerit goods
    9. Possible government responses to externalities
    10. Direct government provision
    11. Extension of property rights
    12. Taxes and subsidies
    13. Tradeable pollution rights
    14. Regulation, legislation and direct controls
    15. Positive externalities of production
    16. Positive externalities of consumption
    17. Merit goods
    18. Why might merit goods be underprovided by the market?
    19. Government responses - merit goods
    20. Public goods
    21. Common access resources & sustainability
    22. The tragedy of the Commons
    23. Common access resources in practice
    24. Sustainability
    25. Threats to Sustainability
    26. The threat to sustainability from the use of fossil fuels
    27. The threat to sustainability from poverty
    28. Government responses to threats to sustainability
    29. Cap and Trade Schemes
    30. Promoting Clean Technologies
    31. The 'dirty side' of cleaner technologies
    32. International responses to threats to sustainability
    33. Asymmetric information
    34. Abuse of monopoly power
    35. Inequality
  16. Section 1.4 Market failure - questions
  17. Section 1.4 Market failure - simulations and activities
  18. 1.5 Theory of the firm
  19. 1.5 Theory of the firm - notes (HL only)
  20. Section 1.5 Theory of the firm - questions
  21. Section 1.5 Theory of the firm - simulations and activities
  22. Print View

Negative externalities of consumption

Syllabus: Explain that demerit goods are goods whose consumption creates external costs.

If you would prefer to view this interaction in a new web window, then please follow the link below:

How to draw the negative externality of Consumption Diagram

1. Draw and label the Price and Quantity axes

2. Draw the downward sloping Marginal Private Benefit (demand) curve MPB

3. Draw the upward sloping Marginal Private Cost curve MPC (it is just MC in the diagram above) because there are no production externailities)

4. Indicate the equilibrium price and quantity level (NB This is what market forces of supply and demand lead to) In other words resources are allocated to this level of output (Qm) and this price (Pm)

5. Draw in the Marginal Social Benefit (MSB) curve, which must be lower than MPB because it now also includes negative external  benefits so overall benefits are lower (NB Consumption considerations affect benefits)

6. Indicate the Price (Ps) and Quantity (Qs) that would be the equilibrium if full social benefits were to be included in the decision making processes

7. Compare the market quantity with the Social Optimum and you can see more is consumed (more resources allocated) than society as a whole wants or needs (Qm>Qs)
Using the same procedure can you now draw the diagram for Positive Externalities of consumption