10.00 Supply a.00 8.00 7.00 6.00 MSC 5.00 4.00 Demand 3.00 2.00 1.00 25000 50000 75000 100000 150000 175000 200000 125000 If a tax or subsidy were used to correct the externality, what would be chosen? O a. tax = $4 O b. subsidy = $3 O c. tax = $3 Od. subsidy = S4
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- Show the market for cigarettes in equilibrium, assuming that there are no laws banning smoking in public. Label the equilibrium private market price and quantity as Pm and Qm. Add whatever is needed to the model to show the impact of the negative externality from second-hand smoking. (Hint: In this case it is the consumers, not the sellers, who are creating the negative externality.) Label the social optimal output and price as Fe and Qe. On the graph, shade in the deadweight loss at the market output.Table 12.12, shows the supply and demand conditions for a firm that will play trumpets on the streets when requested. QS1 is the quantity supplied without social costs. QS2 is the quantity supplied with social costs. What is the negative externality in this situation? Identify the equilibrium price and quantity when we account only for private costs, and then when we account for social costs. How does accounting for the externality affect the equilibrium price and quantity?10.00 9.00 8.00 7.00 6.00 5.00 4.00 3.00 2.00 1.00 b. subsidy = $3 25000 50000 75000 100000 125000 150000 175000 Oc. tax = $3 Supply O d. subsidy = $4 - Demand If a tax or subsidy were used to correct the externality, what would be chosen? O a. tax = $4 ✡3 B. MSC 200000
- Externalities: End of Chapter Problem In Chapter 6, we said that taxes create deadweight losses. When we tax goods with external costs, should we worry about deadweight losses? Why or why not? Any deadweight losses O should not conern us. Deadweight losses are the result of transactions that no longer occur and the problem with negative externalities is that too many transactions occur. O should concern us. If there is a negative externality associated with a good, the deadweight loss from a tax simply exacerbates society's welfare costs. from a tax are counter-productive. Why would we tax goods with negative externalities when the remedy for a negative externality is a subsidy? should concern us. Deadweight losses sound bad because they are bad; we should always avoid deadweight losses.Time left 0:53:28 Suppose that cookie producers create a positive externality equal to $2 per dozen. What is the relationship between the equilibrium quantity and the socially optimal quantity of cookies to be produced? tion 10 et rered ed out of Select one: ag stion O a. No relationship exists. O b. The equilibrium quantity is less than the socially optimal quantity. O c. The equilibrium quantity is greater than the socially optimal quantity. O d. They are equal. Next page revious page ser tour on this page KT11.00 10.00 9.00 8.00 7.00 6.00 5.00 4.00 3.00 2.00 1.00 Supply Marginal Social. Benefit Demand 300 600 900 1200 1500 1800 2100 2400 In the market depicted above, how large is the deadweight loss from the externality? O a. 1000 O b. 600 O c. 900 O d. 800
- 11.00 10.00 9.00 8.00 7.00 6.00 5.00 4.00 3.00 2.00 8 1.00 300 600 900 What kind of externality is depicted above? O a. A negative production externality O b. A positive consumption externality c. A positive production externality d. A negative consumption externality Demand 1200 1500 1800 2100 Supply Marginal Social Benefit 2400Figure: External Costs Price Social cost Supply E D H G Demand Quantity The distance between point I and point H represents the O price to the consumer external cost O private valuc O social costUniversity researchers create a positive externality. If there are no subsidies, what is the relationship between the equilibrium quantity of university research and the optimal quantity of university research produced? Select one: O a. the equilibrium quantity is optimal O b. the equilibrium quantity will be greater than the socially optimal quantity O c. the equilibrium quantity will be less than the socially optimal quantity O d. the equilibrium quantity will be equal to the socially optimal quantity
- When U.S. farmers in the Southwest irigate their land, salt in the ground sol leaks into the Colorado River The Colorado River has become so salty that Mexican farmers further down the tiver cannot irrigate their own land and Mexican crops have been devastated, This situation constitutes n negative externality because:O. a) Us.famers consider only their private costs in their decision makingO. b) US. farmers consider only their external costs in their decision makingO. c) Mexican farmers consider only their private costs in their decision makingO. d) the social cost of irrigation exceed s the social benefits U.s. famers were to Internalize this externality. US, famers would irrigate_______as the_____Assume that a state authorizes a local authority which regulates cable TV service in your neighborhood. This authority then grants an exclusive operating franchise to a cable TV company. Cable TV is excludible but non-rival in use. What kind of market failure is this? O A) A positive externality O B) A public good. OCA club good DI A negatiVe externalityA positive externality will cause a market to produce Select one: more than is socially desirable. O b. more than the same market would produce in the presence of a negative externality. O c. less than is socially desirable. O d. the socially optimal equilibrium amount. a.
