To definition. So what you're understanding was right, but I would just try and when you're writing it, definine it something like that. So when the social benefits of the economic transaction are greater than the private benefits, and this is a positive externality, external benefits. Okay. Diagram a shows the market for nursery school places. Which one of the following measures could a government introduce to achieve the socially opticonsumption of nursery places? Do you want to do the up and down? Sorry, you do the up and down because I'm you move it up and down because you want to read the multiple choice things. Social optimum consumption. How to do it? Sorry. How to do it? How to Yeah okay. So this one so we want social optimum consumption so we want it where marginal social we want it to be here. Okay. If you notice notice sorry, the marginal private cost and marginal social cost are the same to the cost. It's the same Yeah there's no difference between what it privately costs and what it socially costs, but there is a difference between the benefit, the social benefit and the private benefit. So at the moment, the equilibrium is at t because if the government do nothing, it will keep the market mechanism will operate where it is, the private benefit and the private cost where that is an equilibrium. So does that help you with the first? So that's where you're starting. Now what it's saying is it wants to move it to the socially optimum point. So the socially optimum point would be. Here. Okay. Because that would be your demand, but this is what you want your demand curve to be? This is what the demand curve is now. Yeah. So what it's saying is what government, what could a government do to remove the demand, the equilibrium from here to here? Do you want to have a little look and see if you can work it out now? Or did you know that bit? So they want to move the demand from there to there. So what could they do? It's hard because you need to see the letters. So a maximum price of zero, one p per unit. Well, this is a maximum price. Yeah, like that wouldn't make any difference because we were already at an equilibrium lower than the maximum price, weren't we? We were already at equilibrium here. So that's just nonsense. Okay. A subsidy of rs per unit. Yes, that's the answer that one because look. We are saying we are saying that there is marginal benefit to nursery places, okay? And we are saying the equilibrium where marginal social costs equal marginal social benefits is R, okay? But we are also saying that the equilibrium where we don't take into a cost the social costs is, sorry, the social benefits is t. So the market would naturally settle at t in this instance, we want the quantity to be Q1 because of this equilibrium, the quantity is Q1. But at this quantity on the current, on the private benefits, people, you know, people would be not be willing. They would only be willing to pay this price. Gap here. So to get them up to this equilibrium here are we have to subsidize this area. Does that make sense? So let me just rub out all my mess, and then you have a look at it fresh. Okay. Let me ask you, right? If the government does nothing, you put on there where private costs and private benefits, where the equilibrium would be where would the equilibrium be if the government did nothing? This point very good. And where, considering the externalities, do we want this to be? When we want Yeah, because so taking into account the marginal social benefits yevery, good. Okay. So the the whole point is of this diagram is how do we move it from the first point you mark to the second? Okay. Now the first at the second point you've marked here, price is currently this and the quantity is this. All right, this is would be ideal. Okay. This is where the, the, the supply and the the demand basically even out, but that takes in similar price and the quantity, sorry, that's not the maximum price that was related to the other thing, sorry, even all that. That's where the price and the quantity would be an equilibrium Yeah at this price and this quantity. But that is taking account of the social benefits. Now me as an individual, I won't pay for social benefits if, for example, me going to school had social benefits, which it does, I don't want to pay for those social benefits. I'll only pay with money, with the price mechanism, with the private benefits. What benefits me? So there's a difference between the effect of the quantity and the price that actually society is willing to pay and what I am willing to pay. And this is this gap here. To me, nursery places at this quantity is only worth this price. But to society, the actual externalities actually mean that really it's important we should be paying more for it. Okay, but there's a mismatch. I am not going to pay for all these nursery places basically for, you know, it's not worth it to me. I would only have a price down here if I was paying for that much. So to make me keep this quantity and not shift back to my natural equilibrium because me as an individual, my natural equilibrium at t, remember, that's my quantity that I would pick. And at that price, that's where the market would leave me. But we're trying to force the market because of the social benefits R. And the only way to do that, okay, to increase the quantity that people are willing to do is push them down price, okay? Because you push them that way, they would go down price. And to keep it at R, which is where we need it to end up, this bit would have to be subsidized. No, understand? It's too quick. Okay? Okay, right? Right. Very good. Whereyou get to tell me what you know. Nothing. No, you do know. You do know something because you know exactly. You know where we start, right? Tell me where we are now. Two points equilibrium. One is include the demand once include the externality wise one and one does not exactly good. And we want to get from where it doesn't include the externality to where it includes the social because it's a positive externality, the social benefit. We want to move the people's equilibrium to there. Okay. So how do we do that? We want to shift it from t to R now at t with the will let, the price I am willing to pay is only that, pe. But to get it to R, what price do I need to pay? Price should increase. Yeah your price is increasing, but I don't want it to increase. For me, my private benefit is not worth that extra price. Yeah I'm willing to pay pe. Society says it should be at P1. Okay, to make it this equilibrium. Yeah to include the social benefits. I'm not willing to pay that because it's only worth pe to me privately. The orange. Okay, privately moved to so equilibrium price is pe, but some privates move pe e to P1 privately. Well, P1 is the equilibrium including the social benefit. So that includes the social. This is the social equilibrium Yeah so that includes the social benefits and costs. Okay, so that includes social benefits and cost. So the cost that we we want to get to R, because this is where it's the most socially socially sort of beneficial for society. The problem is I am only willing to pay price pe because this is my private benefits, where my equally with my private benefits and my private costs cross, which you know. But we're saying the social equilibrium, where marginal social benefits equal marginal social costs is here. This is the place we want it. And to get it there, we need it at this quantity and at this price. Yep. Do you understand that? We want it at this quantity, the Green quantity and the Green price, where marginal social cost equals marginal social benefits. We want we want these two kinds of costs to be equal, so we should move it to P1 and Q1. Yes. Because that's where the equilibrium is, right, including the externalities because pe and qe point t only takes into account the private benefits, not the externalities. Okay. So to do that, we need to increase the price. And we need to increase the quantity. I'm not willing to pay a higher price because I'm at the orange price, but as a private individual, okay. And if we did increase the price as private, private individual to this price, which is where it needs to be equilibrium. Or let's do it the other way, then the quantity would increase, okay? But if we increase the quantity to where we want it to be to meet the social equilibrium, so if we increased our quantity and said, Yeah, okay, you've got to buy it, all of that, then go up to my let's do a different color. Let's go up to my this is my private this is my private demand curve. Yeah. This is my private demand. No social sort of benefits. So my demand curve, if we said, right, okay, this is the quantity you need to buy, well, I'm only willing to buy that now at price because that's where the quantity hits my demand curve. If you tell me it's you've got to buy more of it, then actually, I'm only willing to pay price. S, if you're telling me I need quantity, one look where it hits my demand curve. This is my private demand curve. I'm only willing to pay price. But where do we want to get it to? We want to get it to this quantity, but also this price. But I'm only willing to pay to here and we want it to go to here. So there's a gap. Here. Difference between price of P1 and ps, that needs to be filled, doesn't it? There's a difference there. And this is where the government makes things cheaper. It subsidizes the goods. So in this case, the nursery, what they would do. So the nursery would have a price. For example, in this case, it would be, let's just say, 100 pounds for the nursery place. Let's just say this, it's 100 pounds. This price is 100 pounds. At the quantity I'm you know we want to get it to, I'm willing to pay what would that be? Probably about 25 pounds. So that's 25 pounds. Sorry, that's meant to be a pound. Sorry. Okay. So can you see there's a difference here of 50 pounds? This is only an example. Okay? 50 pounds. Oh, that is social benefit. R point is social benefit and costs, and t is private benefit and costs. Yes. So there a difference yes. And this gap is externality. I mean this triangle tbs, Yep. T R S R S T R Yeah it's the ality Yeah and what needs to happen to get your get your you from the bottom of the triangle to the top of the triangle is that's the difference in price between what I'm willing to pay as an individual and what is the social benefits, what socially we should pay. And that needs to be subsidized by the government. So in this case, the difference between at that quantity, what I'm willing to pay is 25 pounds. Well, the government needs to subsidize that up to the 100 pounds. The private price is 25 pounds Yeah for example. So and social price is 100 pounds. And the. So Oh, 75, sorry, sorry, 7575 what is 75? The difference between 125? So you've got to get it different. Sorry, the pe. No, no, it's not. But it's not pe. No, no, no. Pe. I don't know what pe was. Sorry. This bit is 75, the subsidy, 75. Yeah that so the amount that the government would have to give to get you to that thing. So the this, the x of positive externality is worth the government giving 75 pounds towards. I mean, the whole sheet is about these, I think. So sure. Do you want to screi think you've getting there? Do you want to screenshot this? Or is it just a bit messy now? Okay, Yeah. How about? Sorry, I can only rub out certain bits. Annotate on diagram a the welfare gain and the new social optimum output arising from successful government intervention in the market for nursery places. Okay, that translates as draw the triangle. Shade in color in the triangle. Of the welfare gain. So the new the new socially, first of all, the new social optimum. The new social optimum is here. So knew it could have been in quantity, okay, the welfare gain. Is this fit? Now the reason that's the welthey're getting because that's where we started, that's where we've moved to. Oh, no, don't we get different colors? Sorry. It started there. Okay, we've moved our equilibrium to there. Okay. So we're now on this we're not we're not on this line anymore. Are we're on this line. So even at this lower quantity, we would be gaining. So basically, this is where we started, this is where we've ended up and this is all the additional welfare, the additional marginal social benefit that we've gained rather than being just at the private benefit. So this one is way fair gain gain Yeah what we gained by what welfare has been gained to society from. You know moving the externality by shifting the you know by giving the. Subsidy, what's gained? What's society gained? Because this is where we were. And at this point, we were looking at the private benefit. Now actually, even at this quantity, we were saying, look on a minute, there's all this extra social benefit that we're not at getting because we're here. Look, this is our, this is where we are. If we were on this line, it would be a higher price. You know, there would be additional welfare gain. But when we move to this equilibrium. We've now shifted from there to there. Okay. But not only that, we've also then gained all of this stuff. Because we're now on this line these all of these quantity points as well. So this is our welfare game. Yes, no, maybe. All right, let's go on to a different graph. I've made a mess of this graph now. I think there's too much stuff on it now. I know it's okay. Let's let's go on to the next one and see, here we go. Okay, this is where we draw one. Okay, it's exactly the same as the graph above. Okay, I'm going to give you that clue, but let's just see if you can draw one and kind of we'll start from scratch. Okay, so the external benefits of higher education include increased tax revenue, so giving you the external benefits, so increase increase tax revenue, faster economic growth and greater innovation and labor market flexibility. So that is giving you positive externalities, isn't it? Okay where social. No benefit. Increased tax revenue, faster economic growth, greater innovation and labor force flexibility. Yep. Telling you all the good things of higher education, positive functionalities. Yeah. So unstraare higher than part of it. It. So you need to draw the graph now you can use, you can scroll up and down to help you. And it is exactly the same graph as above. So have a go at draw wing that. Quantity of benefit and quantity. You're welcome to scroll up and down or if you've got your copy of it, that's fine. So it's about benefit. Okay. That is marginal social code. Marginal social cost equal to marginal private cost. And that is marginal social benefit, which is higher profbenefit good. So the social benefit is higher, is worth more than the for bit of benefit. Yes. That is equilibrium. Q E Q one. P1. So this point. That is positive. Exterality. Where's the positive externality? Not not quite, not quite. Remember you go from. This this is the equilibrium. Currently, this is the equilibrium we want and the benefits of everything above that that bit there you are marking that. I know why you're marking this bit. This bit would be the subsidy. This bit is the difference in price. Difference in price benefit between individual private and socithat would be this possible subsidy. That the customer the customer but the government. But the welfare gain. Oh, sorry. That's the subsidy. This. And this is the work fare game. What the question was it was it right up. Yeah, Yeah, Yeah. It wants the welfare game. So we feel a game that is we feel game game. And this one is the difference. The purple one is difference between P1 and p. Yes. What's up is that is is there subsidy? That's the subsidy that the government would have to pay. How are they going to get the prithat's, the bit the government is going to have to subsidize this purple line to get the price from pe to P1? Okay subsidy. I think you understand like 90% of it now, don't you? You're getting like as we do it, you're getting there. Okay. Just want from which parts is externality? The externality is the difference between you don't really show the externality. You're showing this. This is how you draw it. What you'll so if the externality is the difference between the private benefit and the social benefit, so it's the difference always between these two lines. The externality is the difference between the two lines. Yeah. At this point, the externality is that big. At this point, the externality is that big. But that isn't how we sort of draw it. We don't ever color in this hole, you know, this is all the externalities. It's all the difference between what's the benefit privately and socially, okay? But what we draw is, hang on a minute, we look at where the market would have settled. Well, this is where the market settled. This is where we want the market to be, okay? It's on this line at this price, and we want it to be here. So therefore, we look at what's what do we gain? What's our welfare? We call it welfare gain. So what is the gain from this externality to us of moving from point e, the one no e to E1. Yeah. Also, I'll put what's the externality gain from welfare gain? Externality and movement from there to there. And then that's when we draw the triangle. So the positive externality, the welfare gain in this scenario, moving from here to here is this triangle. And to do that, the government has to give a subsidy of this much to move us up the price. Okay. Oh Yeah, Yeah. Okay. I do not need to mark the externality. So when it says, when it says externality, it's asking about welfare gain. It's asking you to draw this diagram and draw the triangle. Okay? You you marking the marginal private benefit and the marginal social benefit is showing the externality. It's showing the difference between the benefit privately and the benefit such to society. Those two lines show the externality, show the difference between the private benefit and the social benefit. But what we want to look at is, in the movement we're talking about, what do we gain from moving from that point to that point, which is the triangle, the welfare game? Yeah, I understand now once for subsidy, once so far we faagain and that and two triangles. Okay okay. On average in the uk, a working age graduate earns approximately 10000 more per year than a non graduate. This suggests a University degree provides a substantial which one are you going to pick? Working age graduate earns approximately one 10000 pounds more per year than a non graduate. So maybe is that. This one. Very good. Diagram shows the market for bus travel with the current equilibrium quantity as qe and pe. Yep, at this number of bus journeys, there is. Okay. E E. You want to roll? Do you want to scroll up and down? So what it's saying is this is where we're currently at for the equilibrium. Oh, sorry, Yeah I'm looking at looking this so this one and that is at this number of bus Chinese series. 我谢谢他。Is that that thing? Because I know why you said that, but they don't lose tesaid. Remember, this is the welfare gain here, this bit. It's related to the subsidy. Yeah. They haven't lost that. Isn't the welfare loss what you need to it is only that there's a market failure that actually the price mechanism hasn't put us into the best so the best equilibrium so that there is a market failure. It's not that's not a welfare loss. Market failure. This is the welfare gain. There isn't a loss for moving from in this diagram from moving to that one equilibrium to the other. So this is the wealth gain. Yeah. So in this one. Okay. So you just send a not efficient allocation of resources. The price mechanism has failed. This is the welfare gain here. That bit would show the subsidy. You could say you've missed out on this welfare again, you could say if they had moved from there to there, they you know they've missed out on that welfare game, but it's not this triangle. Yeah, that's it really. We're definitely not an excess supply. This is just nonsense. You're never going to hit this point. I exceed equilibrioms here. Let's have a look at this next one. See about the next one. So this about this question, so there's so this point sorry. So pe e and Q E Yeah, pe and Q E doesn't include the acality and doesn't include fare gain. So that is a market failure. Yes. Okay. Because the price mechanism hasn't put the marginal social benefit equal to the marginal social cost. We've missed out in our pricing of this. We've missed out all of the externality. We've missed out all of the gain that we could have had in society. Because the pricing didn't take account of the social benefit. Okay okay Yeah. Okay. The diagram shows the market for vaccinations as soon there's no external costs, which one of the following is okay, so here we've got marginal private costs and marginal social costs are the same. Which of the following is. Because he's alone, right? Okay. Would you want to scroll up and down? No external cost. Which one of this is choose for can vaccinations? No external cost. All that means is that exactly like we've seen them before, where private costs and social costs is the same line. Okay. A free market equilibrium price. So what means free market equilibrium? The free market equilibrium is that a pe and qe? Yes, free market is the one where it only takes into account private benefits. Go through and rule out some of them and know I know. So where market quality exists and free market quality, marginal costs, excess marginal social benefit. The free market equally on quantity, right? Free market equilibrium quantity and this is the social optimum quantity, which one's higher. That's not exceed ds means. So this what this question at this point is saying the free market one. So qe. Is higher than Q2. That's not right. Q2 is higher than qe. Okay at the free market equilibrium quantity. So this quantity. And let me do in a different color. So this quantity for the second one, marginal social costs exceeds marginal social benefits. Marginal social costs exceeds marginal social benefits. No, that's false because marginal that. Yes, yes. Yeah. Okay. Yeah, good. How to explain it? How to explain it? Then you just kind of say why the others aren't, why it is unfor A, B and b. That's the easiest way to do it. Yeah. Why is it unsong why free market equilibrium quality is? I know excso how to explain it. How do you explain c or how do you answer this? Next bit of the question, how do you answer explanation? Right? Then I would say I would go through saying why the other ones are false. So you see, like I've said here, the this says the free market equilibrium quantity is higher than the social optimum quantity. So I would say aces. You know, a can't be right because this is not, because the, at this point, this is lower. So I would always do one of them, but I would explain how the diagram works. So an increase ing quantity from the for C, I would explain how the diagram works. Increasing quantity from the free market equilibrium will lead to a net welfare gain. So I would possibly draw the triangle, and I would say moving the equilibrium from z to t would lead to a net welfare gain of z tm. You know, as shown on the diagram, this would be a net welfare gain because it would take into account not only the private benefits, but the social benefits of quite remember what it was about? What was it about? Oh, vaccinations. And out of the three Marks for the explanation, you can get two Marks for saying why yours is right. Three markets miss. So three market equilibrium quality. Is that is that this point? Is that at this point? No, no, that's this point. Oh, free market. Free market is this one. The free market is with higher than social optimum quality. Social optimum quality in the tea is in. So it is opposite. So Yeah, I know that. So the b quality marginal social cost access marginal social benefits social costs, social benefits. Equal, that is equal. Marginal social cost exceeds marginal social benefits. So at this point, and I'm going to change color at this point, marginal social benefits is hit. Sorry, it's at this point marginal social benefits Yeah that they don't they're not sort of relevant here. Marginal social benefits would be. Lower than marginal social costs theyactually be lower if you went all the way across to that line. But it's not it's not higher anyway. But if you with this three miles, it is not higher. Marginal social benefits would be. There's no social costs. Oh, it's the same. Yeah, you're right. It's the same. It's the same because it's here and here. Yeah, it's the same. So they have the same price. Yes, they have the same price Yeah and different marketing problem brium prices and excess supply of vaccinations. There's no excess supply because we're at equilibrium, aren't we? Yeah. So that can't be right. Equilibrium is where supply meets demand. Ds, so there's no excess supply. It is if Yeah Yeah. So it can't have excess supply. But just so you know, on a three mark question like that, you can get one mark. Or saying why one is wrong. Okay, so it's always worth doing that and two Marks for why yours is right. So it's always worth doing why one is wrong, especially if it's really obvious. And then two Marks, yours while yours is right. That's the best way to answer those. So explain why you've picked your answer and then Picone of them and say why it's wrong. Yep, all right then see you later, bye.