External costs/benefits, socially optimal outcomes, and policy responses.
Key Idea: Topic 2.8 explains why markets fail when there are **external costs or benefits** that are not reflected in the price. It covers **negative externalities**, **positive externalities**, and **common pool resources**.
Know the diagram labels: MPC, MSC, MPB, MSB. The gap between private and social curves = the externality. The welfare loss is ALWAYS a triangle.
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Start studying freeTopic 2.8 Market failure: externalities and common pool resources forms a core part of Unit 2: Microeconomics in IB Economics. Mastering these concepts will strengthen your understanding of connected topics across the syllabus and prepare you for exam questions that require analysis, evaluation, and real-world application.
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