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A-Level Economics · Positive production externality diagram question

Which area is the WELFARE GAIN society misses at the free-market output?

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The diagram

The answer

The triangle E G F. Units 5→7 are worth more (D) than their TRUE cost (MSC) — triangle EGF is the unrealised surplus. Between market (E) and optimum (F) each unit's benefit on D exceeds its social cost on MSC — triangle EGF, pointing at the optimum, is what society forgoes.

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

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