Question 4 According to the Ministry of Health of New Zealand, "Because face masks are an effective tool for reducing the spread of COVID-19 and other respiratory illnesses, face masks will continue to be supplied to people for free." The figure shows the market supply and demand curves for face masks during the pandemic, with and without government subsidy. 4(a) Explain what an externality is and why wearing masks can create a positive externality on others. (4 marks) 4(b) Discuss, with reference to the PRIVATE VALUE and the SOCIAL VALUE portions in the figure, why the market fails to achieve the EFFICIENT EQUILIBRIUM of wearing masks during the pandemic if there is no government subsidy on face masks. (6 marks) PRICE / COST to "internalize the externality" EXTERNAL DEADWEIGHT EFFICIENT BENEFIT LOSS Subsidy EQUILIBRIUM SUPPLY SOCIAL VALUE (PRIVATE COSTS) PEFFICIENT PMARKET PRIVATE VALUE DEMAND (PRIVATE VALUE) Q. Market Q. Efficient QUANTITY OF Masks Wearing