2. The following data show how the marginal external benefit and marginal private benefit associated with a soil treatment agent to control Japanese beetles vary GALLONS PER YEAR (IN MILLIONS) 20 30 40 50 MPB ($) 30 25 20 15 MEB ($) 10 6 2 0 with the gallons of the control agent sold per year. Draw the demand curve for the control agent and show how the marginal private benefit differs from the marginal social benefit. Suppose the supply of the agent is infinitely elastic at the current price of $25 per gallon. Will the market equilibrium be efficient? How would your answer differ if the market supply were infinitely elastic at a price of $15 per gallon? What policies could you suggest to achieve efficiency?

2. The following data show how the marginal external benefit and marginal private benefit associated with a soil treatment agent to control Japanese beetles vary GALLONS PER YEAR (IN MILLIONS) 20 30 40 50 MPB ($) 30 25 20 15 MEB ($) 10 6 2 0 with the gallons of the control agent sold per year. Draw the demand curve for the control agent and show how the marginal private benefit differs from the marginal social benefit. Suppose the supply of the agent is infinitely elastic at the current price of $25 per gallon. Will the market equilibrium be efficient? How would your answer differ if the market supply were infinitely elastic at a price of $15 per gallon? What policies could you suggest to achieve efficiency?

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Question

Please answer question two

HINT: an infinitely elastic supply curve is a horizontal line at the price

2. The following data show how the marginal external benefit and marginal private
benefit associated with a soil treatment agent to control Japanese beetles vary
GALLONS PER YEAR (IN
MILLIONS)
20
30
40
50
MPB ($)
30
25
20
15
MEB ($)
10
6
2
0
with the gallons of the control agent sold per year. Draw the demand curve for the
control agent and show how the marginal private benefit differs from the marginal
social benefit. Suppose the supply of the agent is infinitely elastic at the current price
of $25 per gallon. Will the market equilibrium be efficient? How would your answer
differ if the market supply were infinitely elastic at a price of $15 per gallon? What
policies could you suggest to achieve efficiency?

Defintion Defintion Curve that represents the graphical relationship between the total supply of goods and services and the price level in the economy. When the price level increases, producers tend to supply more of a product in the market to earn a higher revenue or vice versa.

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