2. Efficiency in the presence of externalities Fireworks impose many external costs on society: noise pollution, pets and children that become frightened, accidents leading to property damage and bodily harm, and so on. Therefore, the market equilibrium quantity of fireworks does not equal the socially optimal quantity. The following graph plots the demand for fireworks (their private value), the supply of fireworks (the private cost of producing them), and the social cost of fireworks, including both the private cost and external costs. Use the black point (plus symbol) to indicate the market equilibrium quantity. Next, use the purple point (diamond symbol) to indicate the socially optimal quantity. PRICE OF FIREWORKS Social Cost Supply (Private Cost) Demand (Private Value) + Market Equilibrium Socialy Optimal Level

2. Efficiency in the presence of externalities Fireworks impose many external costs on society: noise pollution, pets and children that become frightened, accidents leading to property damage and bodily harm, and so on. Therefore, the market equilibrium quantity of fireworks does not equal the socially optimal quantity. The following graph plots the demand for fireworks (their private value), the supply of fireworks (the private cost of producing them), and the social cost of fireworks, including both the private cost and external costs. Use the black point (plus symbol) to indicate the market equilibrium quantity. Next, use the purple point (diamond symbol) to indicate the socially optimal quantity. PRICE OF FIREWORKS Social Cost Supply (Private Cost) Demand (Private Value) + Market Equilibrium Socialy Optimal Level

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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5) Mr. Leon is at it again! He vandalized a public park. Now society has to clean it up. Based on the numbers below what would be the socially optimal amount that should be cleaned up? % cleaned total benefits total costs 25 $10,000 $1,000 50 $15,000 $4,000 75 $18,000 $7,000 100 $19,000 $10,000 *Show the marginal benefits and marginal costs, graphically.
Based on the graph:a. In this market, how much is the external cost from the production of each unit of tobacco? To reach the social optimum, should the government provide a subsidy or impose a tax? If so, how much tax or subsidy? b. Is there a deadweight loss in this market? If so, why is there a deadweight loss?
(12) Consider a market with social marginal benefit (quantity demanded) given by SMB = 600 – Q and private marginal cost (quantity supplied) given by PMC = Q. Social marginal cost is given by SMC = 200 + Q. Assume SMB = PMB. (a) Graph these SMB, SMC, and PMC curves. (b) Find the market equilibrium price and quantity. (c) Find the socially optimal equilibrium price and quantity.
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5.. "Since a public good is enjoyed by all members of society, willingness to pay for the good will not diminish as the amount produced increases." Evaluate and use an example to support your answer. This statement is (correct incorrect). Public goods face (increasing, constant, diminishing ) returns like any other good. Consider the number of highways in a town, for example. Citizens of a town are very willing to pay for the first highway, as it produces large gains to the town. Successive highways produce (more and more, less and less ) willingness to pay because the citizens face lower and lower gains from the increased number of highways. In a town of, say 20,000, 15 highways (would, would not) produce much more benefit than just 2 or 3 highways because of ( increasing, constant, diminishing ) returns.
Externalities - Definition and examples An externality arises when a firm or person engages in an activity that affects the wellbeing of a third party, yet neither pays nor receives any compensation for that effect. If the impact on the third party is adverse, it is called a ___________ externality. The following graph shows the demand and supply curves for a good with this type of externality. The dashed drop lines on the graph reflect the market equilibrium price and quantity for this good.
3. The effect of negative externalities on the optimal quantity of consumption Consider the market for electricity. Suppose that a power plant dumps byproducts into a nearby river, creating a negative externality for those living downstream from the plant. Producing additional electricity imposes a constant per-unit external cost of $300. The following graph shows the demand (private value) curve and the supply (private cost) curve for electricity. Use the purple points (diamond symbol) to plot the social cost curve when the external cost is $300 per unit. 1000 900 800 700 600 500 400 300 200 PRICE (Dollars per unit of electricity) 100 ப 0 0 1 2 ° 3 0 ° 4 ° QUANTITY (Units of electricity) 5 6 Supply (Private Cost) Demand (Private Value) Social Cost ? The market equilibrium quantity is units of electricity, but the socially optimal quantity of electricity production is units. To create an incentive for the firm to produce the socially optimal quantity of electricity, the government…
Air horns impose many external costs on society: the risk of being deafened, the annoyance of being awakened in the middle of the night, and so on. Therefore, the market equilibrium quantity of air horns is not equal to the socially optimal quantity. The following graph shows the demand for air horns (their private value), the supply of air horns (the private cost of producing them), and the social cost of air horns, including both the private cost and external costs. Use the black point (plus symbol) to indicate the market equilibrium quantity. Next, use the purple point (diamond symbol) to indicate the socially optimal quantity.
3. Efficiency in the presence of externalities Roses confer many external benefits on society: the beauty they add to a room or garden, the wonderful aroma they give off, and so on. Therefore, the market equilibrium quantity of roses is not equal to the socially optimal quantity. The following graph shows the demand for roses (their private value), the supply of roses (the private cost of producing them), and the social value of roses (the private value and external benefits). Use the black point (plus symbol) to indicate the market equilibrium quantity. Next, use the purple point (diamond symbol) to indicate the socially optimal quantity.
6. A paper mill discharges chemicals into a river that washes the shores of a downstream resort area. The private cost, social cost, and marginal benefit associated with the production of paper are given by the following equations: PMC = 5 + Q, SMC = 10 + 2Q, and MB = 35 -0.5Q. a. Provide a labelled diagram to illustrate how the competitive free market will not produce the socially optimal amount of output. b. Illustrate the efficiency loss. C. Illustrate how a per-unit tax could be used to correct this problem.
Oregon legislative committee passes cap-and-trade bill Lawmakers are moving Oregon a step closer to adopting what would be the nation's second economywide carbon pricing scheme. after California. Price and cost (cents per mile) Q 40- S=MC a G Source: Portland Business Journal, May 17, 2019 35 The transportation sector is Oregon's largest contributor to carbon emissions. Under what conditions would Oregon's carbon pricing scheme reduce carbon emissions to the efficient quantity? Use a graph to illustrate your explanation. Show the effects of setting the price of carbon too low and too high. 30- 25 20 15 and permits traded at a The efficient quantity of transportation would be produced if the quantity of permits was set such that, price OA. marginal private cost of transportation equals marginal benefit, above marginal external cost B. marginal social cost of transportation equals marginal benefit, equal to marginal external cost OC. marginal social cost of transportation equals marginal…
4. Hydraulic Fracking is the process of drilling and injecting fluid into the ground at a high pressure in order to fracture shale rocks to release natural gas inside to be sold as an energy source. Up to 600 chemicals are used in fracking fluid, including known carcinogens and toxins. This is an example of a... a. Negative production externality b. Negative consumption externality C. Positive production externality d. Positive consumption externality