1. Positive externality from consumption Forgone benefit to society of the externality-Deadweight loss Price $80 In thousands) го 00 50 40 30 20 10 MSB Marginal benef +Marginal external benef D Marginal benefit 10 20 30 40 60 90 700 Quantity In millions of years a. Calculate the deadweight loss caused by the positive externality. b. If the government wants to solve this externality using mandated production, how much should it be c. If the government wants to solve this externality using a Pigou subsidy, how much should it be? II. Negative externality from production Price $0.40 (per Wh 0.30 0.25 -0.30 0.15 0.10 MSC Marginal cost Merpinal external cost Marginal cost 100 200 300 400 500 600 700 800 Quantity Inbo of kn a. Calculate the deadweight loss caused by the negative externality. b. If the government wants to solve this externality using quota, how much should it be? c. If the government wants to solve this externality using a Pigou tax, how much should it be?

ENGR.ECONOMIC ANALYSIS
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Chapter1: Making Economics Decisions
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1. Positive externality from consumption
Forgone benefit to society of
the externality-Deadweight loss
Price $80
In thousands)
го
00
50
40
30
20
10
MSB
Marginal benef
+Marginal
external benef
D
Marginal
benefit
10 20 30 40 60 90 700
Quantity
In millions
of years
a. Calculate the deadweight loss caused by the positive externality.
b. If the government wants to solve this externality using mandated production, how much should it be
c. If the government wants to solve this externality using a Pigou subsidy, how much should it be?
II. Negative externality from production
Price $0.40
(per Wh
0.30
0.25
-0.30
0.15
0.10
MSC
Marginal cost
Merpinal external cost
Marginal cost
100 200 300 400 500 600 700 800
Quantity
Inbo
of kn
a. Calculate the deadweight loss caused by the negative externality.
b. If the government wants to solve this externality using quota, how much should it be?
c. If the government wants to solve this externality using a Pigou tax, how much should it be?
Transcribed Image Text:1. Positive externality from consumption Forgone benefit to society of the externality-Deadweight loss Price $80 In thousands) го 00 50 40 30 20 10 MSB Marginal benef +Marginal external benef D Marginal benefit 10 20 30 40 60 90 700 Quantity In millions of years a. Calculate the deadweight loss caused by the positive externality. b. If the government wants to solve this externality using mandated production, how much should it be c. If the government wants to solve this externality using a Pigou subsidy, how much should it be? II. Negative externality from production Price $0.40 (per Wh 0.30 0.25 -0.30 0.15 0.10 MSC Marginal cost Merpinal external cost Marginal cost 100 200 300 400 500 600 700 800 Quantity Inbo of kn a. Calculate the deadweight loss caused by the negative externality. b. If the government wants to solve this externality using quota, how much should it be? c. If the government wants to solve this externality using a Pigou tax, how much should it be?
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