i am having trouble with this question microeconmics chapter 5 question 4 ### 4. Externalities - Definition and ExamplesAn externality arises when a firm or person engages in an activity that affects the well-being 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 **negative** 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.**Graph Description:**- **Axes:** - The vertical axis represents the price (in dollars per unit). - The horizontal axis represents the quantity (in units).- **Curves:** - There are two linear curves labeled as "Supply" and "Demand": - The **Supply** curve is positively sloped, indicating that as the price increases, the quantity supplied increases. - The **Demand** curve is negatively sloped, indicating that as the price decreases, the quantity demanded increases.- **Equilibrium:** - The intersection point of the Supply and Demand curves marks the market equilibrium, showing the equilibrium price and the equilibrium quantity. - Dashed drop lines connect this intersection point to the horizontal and vertical axes, highlighting the equilibrium price and quantity values.**Instructions:**Shift one or both of the curves to reflect the presence of the externality. If the social cost of producing the good is not equal to the private cost, then you should shift the supply curve to reflect the social costs of producing the good; similarly, if the social value of producing the good is not equal to the private value, then you should shift the demand curve to reflect the social value of consuming the good.---This setup helps illustrate the impact of externalities on market outcomes and how adjusting supply and demand curves can reflect the social costs and benefits more accurately. ### Externalities and Market Equilibrium**With this type of externality, in the absence of government intervention, the market equilibrium quantity produced will be ____ than the socially optimal quantity.**---**Which of the following generate the type of externality previously described? Check all that apply.**- [ ] The city where you live has granted a permit to put a movie theater in your neighborhood, causing traffic jams at night and on weekends.- [ ] A leading electronics manufacturer has discovered a new technology that dramatically improves the picture quality of plasma televisions. Firms of all brands have free access to this technology.- [ ] Bob has planted several trees in his backyard that increase the beauty of the neighborhood, especially during the fall foliage season.- [ ] Your roommate Ginny has bought a puppy that barks all day while you are trying to study economics.---**Explanation:**Externalities are indirect effects of economic activities that affect uninvolved third parties. Positive externalities result in benefits to others, while negative externalities impose costs on others. In a market lacking regulation, goods or services that generate negative externalities tend to be overproduced, whereas those that generate positive externalities tend to be underproduced relative to the socially optimal level.

An externality arises vwhen 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 extermality. 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.

An externality arises vwhen 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 extermality. 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.

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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i am having trouble with this question microeconmics chapter 5 question 4

### 4. Externalities - Definition and Examples

An externality arises when a firm or person engages in an activity that affects the well-being 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 **negative** 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.

**Graph Description:**

- **Axes:**
- The vertical axis represents the price (in dollars per unit).
- The horizontal axis represents the quantity (in units).

- **Curves:**
- There are two linear curves labeled as "Supply" and "Demand":
- The **Supply** curve is positively sloped, indicating that as the price increases, the quantity supplied increases.
- The **Demand** curve is negatively sloped, indicating that as the price decreases, the quantity demanded increases.

- **Equilibrium:**
- The intersection point of the Supply and Demand curves marks the market equilibrium, showing the equilibrium price and the equilibrium quantity.
- Dashed drop lines connect this intersection point to the horizontal and vertical axes, highlighting the equilibrium price and quantity values.

**Instructions:**
Shift one or both of the curves to reflect the presence of the externality. If the social cost of producing the good is not equal to the private cost, then you should shift the supply curve to reflect the social costs of producing the good; similarly, if the social value of producing the good is not equal to the private value, then you should shift the demand curve to reflect the social value of consuming the good.

---

This setup helps illustrate the impact of externalities on market outcomes and how adjusting supply and demand curves can reflect the social costs and benefits more accurately.

### Externalities and Market Equilibrium

**With this type of externality, in the absence of government intervention, the market equilibrium quantity produced will be ____ than the socially optimal quantity.**

---

**Which of the following generate the type of externality previously described? Check all that apply.**

- [ ] The city where you live has granted a permit to put a movie theater in your neighborhood, causing traffic jams at night and on weekends.
- [ ] A leading electronics manufacturer has discovered a new technology that dramatically improves the picture quality of plasma televisions. Firms of all brands have free access to this technology.
- [ ] Bob has planted several trees in his backyard that increase the beauty of the neighborhood, especially during the fall foliage season.
- [ ] Your roommate Ginny has bought a puppy that barks all day while you are trying to study economics.

---

**Explanation:**

Externalities are indirect effects of economic activities that affect uninvolved third parties. Positive externalities result in benefits to others, while negative externalities impose costs on others. In a market lacking regulation, goods or services that generate negative externalities tend to be overproduced, whereas those that generate positive externalities tend to be underproduced relative to the socially optimal level.

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