26Price2422201816Supply1412108642+Demand Social ValueHI2 4 6 8 10 12 14 16 18 20 22 QuantityHow large would the subsidy need to be to internalize the externality?Less than $2○ $2O More than $2O The size of the subsidy cannot be determined from the figure.

The Power of Externalities: Understanding Subsidies and Social OptimumImagine a scenario - a local…

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ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

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Problem 1QTC

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olent comic book) $10- 9. 001 10 V $10, $4 $8. $4 $8, 58 4321 $₂ S₁ ( 1 2 3 4 5 6 7 8 9 10 Once a quota is imposed on violent comic books at two sales per day, producer surplus is $4, $10 Quantity of violent comic books/day and deadweight loss is
Suppose the graph shows the market for wheat. The equilibrium price is $25. To support incomes of farmers, the government imposes a price floor of $35. What is the cost of the program borne by the government? 50 45 40 35 30 25 20 15 10 5 Price - 100 200 300 400 500 600 700 800 Quantity Multiple Choice O O $14.000 $12.000 $21,000 $15,000
Suppose Home is a small exporter of wheat. At the world price of 100 US dollars per tonne, Home growers export 20 tons of wheat. Now suppose the Home government decides to support its domestic producers with an specific export subsidy of 40 US dollars per tonne. Use Figure 1 to answer the following questions: Figure 1: Supply and Demand for Wheat at Home Home price 140 100 X 10 20 40 50 Supply Demand Quantity (a) Explain why consumer and producer surplus can be used to gauge the change in welfare caused by the export subsidy on individuals and firms.
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Price ($) 14 13 12 11 10 9 8 7654321 A H DE B IC X G F 10 20 rise by area B + C, but fall by area C + G. S D rise by area B, but fall by area C + G. O According to the graph shown, if the market goes from equilibrium to having its price set at $10 producer surplus will: (A) rise by area B, but fall by area G. Brise by area B + C + D + E. Quantity
Price $10 ∞o 9 5 4 3 2 0 Demand 10 20 Subsidy Supply 30 40 50 60 70 80 90 100 Quantity Total gains from trade: $ a. Without the subsidy, what are the total gains from trade?
8) Consider a perfectly competitive market with a negative externality. What will happen to the social surplus if the government introduces a lump-sum tax on producers? A) Increase in the short run; increase in the long-run B) Increase in the short run; no change in the long-run C) Increase in the short run; decrease in the long-run D) No change in the short run; increase in the long-run E) No change in the short run; no change in the long-run F) No change in the short run; decrease in the long-run G) Decrease in the short run; increase in the long-run H) Decrease in the short run; no change in the long-run I) Decrease in the short run; decrease in the long-run J) The scenario described in this question is impossible because a perfectly competitive market cannot have a negative externality
8. a. b. C. Price d. P S P 0 P. A d H B E I area H. FG J 20 D Q1 Refer to Excise Subsidy. After the subsidy is granted, producers' surplus equals area A + B + E + H. area E + H+F+I. area B + C + E + H. S S + Subsidy D Quantity
S= 11c- O D+G OA+B p. c per stem Which area corresbonds to producer surplus at a price of $0.30? What is the area of total social welfare? A+B+D+G B+_D+G 30c 28c OA+B C+D D+G E B n F S Demand 1.25 1.34 Q, Billions of rose stems per year

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26 Price 24 22 20 18 16 Supply 14 12 10 8 6 4 2+ Demand Social Value HI 2 4 6 8 10 12 14 16 18 20 22 Quantity How large would the subsidy need to be to internalize the externality? Less than $2 ○ $2 O More than $2 O The size of the subsidy cannot be determined from the figure.