Exam-style question
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Explain how externalities affects resource allocation, welfare or macroeconomic performance. Include evaluation in your answer. (1).
Model answer
What a good answer should say
- 3.1.8.4 Positive and Negative Externalities in EXAM-STYLE 1: a strong response defines the relevant economic concept, applies it to the stated context, develops a cause-and-effect chain, and reaches a judgement about consumer surplus, producer incentives, efficiency and equity.
Explanation
Why this works
3.1.8.4 Positive and Negative Externalities in is assessed through the prompt: "Explain how externalities affects resource allocation, welfare or macroeconomic performance. Include evaluation in".
Begin with a precise definition of Positive and Negative Externalities in, then apply it to Individuals, firms, markets and market failure using the context rather than a memorised paragraph. The analysis should move through at least three steps: the initial cause, the transmission mechanism, and the economic consequence for consumer surplus, producer incentives, efficiency and equity.
Evaluation should consider whether the result depends on elasticities, confidence, spare capacity, market power, data quality, the size of the intervention, or the time period. A high-quality AQA answer finishes with a judgement that weighs the strongest argument against the most important limitation, not a generic "it depends" sentence.
Common mistake
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