9. Efficiency in the presence of externalities Parks confer many external benefits on society: open space, trees that reduce pollution, and so on. Therefore, the market equilibrium quantity of parks is not equal to the socially optimal quantity. The following graph shows the demand for parks (their private value), the supply of parks (the private cost of producing them), and the social value of parks, including both 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. Supply (Private Cost) Market Equilibrium Socially Optimal Level Social Value Demand (Private Value) QUANTITY OF PARKS PRICE OF PARKS

9. Efficiency in the presence of externalities Parks confer many external benefits on society: open space, trees that reduce pollution, and so on. Therefore, the market equilibrium quantity of parks is not equal to the socially optimal quantity. The following graph shows the demand for parks (their private value), the supply of parks (the private cost of producing them), and the social value of parks, including both 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. Supply (Private Cost) Market Equilibrium Socially Optimal Level Social Value Demand (Private Value) QUANTITY OF PARKS PRICE OF PARKS

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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7.
2. Efficiency in the presence of externalities Vaping imposes many external costs on society secondhand smoke, the adverse health burdens imposed on society, and so on. Therefore, the market equilibrium quiantity of vapes does not equal the socially optimal quantity. The following graph plots the demand for vapes (their private value), the supply of vapes (the private cost of producing them), and the social cost of vapes, including both the private cost and external costs. Use the block point (plus symbol) to indicate the market equilibrium quaneity Next, use the purple point (diamond symbol) to indicate the socially opamal quantity ? PRICE OF VAPES Demand (Private Value) QUANTITY OF VAPES Social Cost Supply (Private Cost) + Market Equilibrium Socially Optimal Level
4 This is a graph reprinted from Section 12.1 the Economics of Pollution. Please explain the graph with particular attention paid to why there are two supply curves. How can a government use this graph to establish pollution controls?
Refer to the image Ch. 18, Example 18.7 - 'The Demand for Clean Air' Why is clean air a public good? What does Fig. 18.16 (image provided) show about the willingness to pay for clean air?
3. Suppose the EPA wants to reduce pollution to the socially optimal level. Based on the data in the table below, what is the optimal level of pollution? Total cleanup Total Total (tons) Benefit Cost 50 2 85 18 3 115 28 4 140 39 5 160 51 179 63 7 197 76 8 214 90 230 105 10 245 120 11 259 137 12 273 156 13 286 177 14 299 200 15 311 225
What are the two key characteristics of public goods?
3. The effect of negative externalities on the optimal quantityof consumption Consider the market for pharmaceuticals. Suppose that a pharmaceutical factory dumps toxic waste into a nearby river, creating a negative externality for those living downstream from the factory. Producing additional pharmaceuticals imposes a constant per-unit external cost of $280. The following graph shows the demand (private value) curve and the supply (private cost) curve for pharmaceuticals. Use the purple points (diamond symbol) to plot the social cost curve when the external cost is $280 per unit. PRICE (Dollars per unit of pharmaceuticals) 800 720 640 560 480 400 320 240 160 80 O 1 2 3 □ O O ㅁ 4 Supply (Private Cost) Demand (Private Value) 5 6 7 QUANTITY (Units of pharmaceuticals) Social Cost ? The market equilibrium quantity is units of pharmaceuticals, but the socially optimal quantity of pharmaceuticals production is units. To create an incentive for the firm to produce the socially optimal…
3. The effect of negative externalities on the optimal quantity of consumption Consider the market for steel. Suppose that a steel manufacturing plant dumps toxic waste into a nearby river, creating a negative externality for those living downstream from the plant. Producing an additional ton of steel imposes a constant marginal external cost (MEC) of $165 per ton. The following graph shows the demand (marginal private benefits, or MPB) curve and the supply (marginal private costs, or MPC) curve for steel. Use the purple points (diamond symbol) to plot the marginal social costs (MSC) curve when the marginal external cost is $165 per ton. PRICE (Dollars per ton of steel) 1100 990 880 770 660 550 440 330 220 110 0 0 + 1 O ☐ O 2 0 H 3 ▬ The market equilibrium quantity is O 4 5 QUANTITY (Tons of steel) ☐ ☐ 6 Supply (MPC) Demand (MPB) 7 MSC ? tons of steel, but the socially optimal quantity of steel production is To create an incentive for the firm to produce the socially optimal quantity…
Parks confer many external benefits on society: open space, trees that reduce pollution, and so on. Therefore, the market equilibrium quantity of parks is not equal to the socially optimal quantity. The following graph shows the demand for parks (their private value), the supply of parks (the private cost of producing them), and the social value of parks, including both 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.
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.
Paragraph Styles ILOS: A2, C2 Editing Voice 4. The paper industry has the demand and supply curves shown below: Price of paper Quantity demanded Quantity supplied 80 40 70 50 4 60 60 50 70 a. Suppose that this industry results in extreme externalities. What can be said about its optimal output? b. Draw the supply and demand curves for paper. Does the supply curve reflect the true social costs of producing the product? If not will a supply curve reflecting the true social costs lies above or below the supply curve you have drawn? c. What is the equilibrium price of paper? From the point of view of reflecting the true social costs, is this price the correct one, or too low or too high?
4. Suppose the supply curve of portable radio rentals in Golden Gate Park is given by P= 5+ 0.1Q and the demand curve is by P = 20 -0.2Q. a. If each portable radio imposes $3 per day in noise costs on others, by how much will the market equilibrium quantity exceed the socially optimal number of rentals? b. How would the imposition of a $3 per unit tax affect the efficiency in this market?