Explain the meaning of and whether there is a link

Mark scheme

Marking points from the official mark scheme (May/June 2019). The mark or mark type is shown in brackets.

1. Meaning of externality and public goods (4), link? Existence of externalities can be found with public goods which are not provided by the market. (2); meaning of transfer payments and poverty trap (4) link? Poverty can be relieved by transfer payments. Finding work but only on a low income may result in withdrawal of transfer payment and cause return to poverty (2)
2. Explanation of meaning of efficiency allocation and explanation of the analysis which ensures an efficient optimum may be reached. Allocative efficiency is intended. Allocative efficiency ensures that no one can be made better off without someone being worse off. Individual actions are not always best for society as a whole and externalities (market failure result). Discussion of necessity/desirability of government intervention to achieve efficiency. This could be by taxes, subsidies, regulation, information provision, ownership, persuasion (nudge theory) rather than by enforcement.