Key Concepts

• • MPB is the private benefit to the buyer — what they are willing to pay
• • MSB = MPB + external benefit spilling over to third parties (e.g., education, vaccination)
• • Market produces at MPB ∩ MPC, less than the socially optimal MSB ∩ MPC quantity
• • The orange triangle is deadweight loss from underproduction
• • Government subsidies can close the gap to the social optimum