Economics · Unit 2: Microeconomics

EC2.8 — Market failure: externalities and common pool or common access resources

Economics · SL / HL · syllabus-mapped notes

1. EC2.8.1

   Socially optimum output: marginal social benefit (MSB) equals marginal social cost (MSC). (MSB = MSC): allocative efficiency; social/community surplus maximized

   Explain how externalities drive private benefit and cost away from social benefit and cost, and show the resulting over- or underprovision and welfare loss.

2. EC2.8.2

   Government intervention in response to externalities and common pool resources including:

   Explain the nine responses to externalities and common pool resources, from Pigouvian and carbon taxes to collective self-governance.

3. EC2.8.3

   Strengths and limitations of government policies to correct externalities and approaches to managing common pool resources including:

   Evaluate those policies against the difficulty of measuring an externality, how effective each is, and what each does to stakeholders.

4. EC2.8.4

   Importance of international cooperation

   Evaluate why sustainability problems cross borders, what makes cooperation between governments hard, and why monitoring and enforcement are the weak points.