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A-Level Economics · Negative consumption externality diagram question

Smoking harms bystanders: MSB sits BELOW MPB. Which point is the FREE-MARKET outcome?

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The diagram

The answer

Point E. Smokers weigh only their PRIVATE benefit: MPB crosses S at point E, quantity 5 — too much for society. Consumers act on MPB, ignoring the harm to others, so the market settles where MPB crosses S: point E — an OVERconsumption.

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This is one of 5 questions on the negative consumption externality diagram — every corner lettered, every wrong answer diagnosed.

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