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. Adjust 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 drag 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 drag the demand curve to reflect the social value of consuming the good. PRICE (Dollars per unit) QUANTITY (Units) Supply Demand Supply 11 Demand With this type of externality, in the absence of government intervention, the market equilibrium quantity produced will be socially optimal quantity. Which of the following generate the type of externality previously described? Check all that apply. Your roommate Ginny has bought a cat to which you are allergic. than the greater less The city where you live has turned the publicly owned land next to your house into a park, causing trash dropped by park visitors to pile
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. Adjust 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 drag 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 drag the demand curve to reflect the social value of consuming the good. PRICE (Dollars per unit) QUANTITY (Units) Supply Demand Supply 11 Demand With this type of externality, in the absence of government intervention, the market equilibrium quantity produced will be socially optimal quantity. Which of the following generate the type of externality previously described? Check all that apply. Your roommate Ginny has bought a cat to which you are allergic. than the greater less The city where you live has turned the publicly owned land next to your house into a park, causing trash dropped by park visitors to pile
Essentials of Economics (MindTap Course List)
8th Edition
ISBN:9781337091992
Author:N. Gregory Mankiw
Publisher:N. Gregory Mankiw
Chapter11: Public Goods And Common Resources
Section: Chapter Questions
Problem 2PA
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Transcribed Image Text: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.
Adjust 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 drag 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 drag the demand curve to reflect the social value of consuming the good.
PRICE (Dollars per unit)
QUANTITY (Units)
Supply
Demand
Supply
11
Demand
With this type of externality, in the absence of government intervention, the market equilibrium quantity produced will be
socially optimal quantity.
Which of the following generate the type of externality previously described? Check all that apply.
Your roommate Ginny has bought a cat to which you are allergic.
than the
greater
less
The city where you live has turned the publicly owned land next to your house into a park, causing trash dropped by park visitors to pile
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