An important class of externalities to which attention has recently been directed is calledinformation externalities. The information produced by one individual or firm generates benefitsfor others. The success of an oil well on one tract of land increases the likelihood of oil's beingfound on an adjacent tract, and hence increases the value of that tract.a) Can you think of other examples of information externalities?b) What are the likely consequences of information externalities for the efficiency of resourceallocations?c) Discuss the possibilities of private market solutions to these problems.

a. Examples of Externalities in InformationWhen information created by one party helps others…

Answered: An important class of externalities to…

Principles of Microeconomics

7th Edition

ISBN:9781305156050

Author:N. Gregory Mankiw

Publisher:N. Gregory Mankiw

Chapter22: Frontiers Of Microeconomics

Section: Chapter Questions

Problem 8PA

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QUESTION 5 Suppose there are two consumers A and B, and two goods x and y. A's utility function has the following form UA = XA - (XR)-1. Which of the following is true? O Consumer A's consumption of good x exhibits a negative externality. O Consumer A's consumption of good x exhibits a positive externality. O Consumer B's consumption of good x exhibits a negative externality. O Consumer B's consumption of good x exhibits a positive externality. QUESTION 6 If we write possible outcomes as (Utility of A, Utility of B), which of the following outcomes would a Utilitarian social welfare function select O (19, 1) O (7, 7) O (-1, 22) O (0, 13) QUESTION 7 In the hotelling model, suppose firm 2 locates at 45 meters. Which of the following location choices for firm 1 gives highest profits? O 50 meters O 49 meters O 44 meters
ECONOMICS Please Show Your Work With an Explanation This problem set explores what happens to pricing when we add network effects, which are a specific form of positive externality. You’ve invented a 3D fax machine. This cool technology is almost like a Star Trek teleporter. You can scan an object at one machine, which creates an exact copy at another 3D fax machine. It is so valuable that as more people use it, it becomes more valuable, and the price any given user is willing to pay increases in turn. Consider a scenario in which there are 12 possible users, who each value the fax machine at i*n, where i is the index of that user (from 1 to 12), and n is the number of other purchasing users. So, if no one buys the 3D fax machine, everyone values it at 0. However, as soon as one person buys the device, then the 12 possible users begin to value the product at 1, 2, … 12, respectively. If 2 people purchase, the 12 possible users’ valuations increase to 2, 4, … 24, and so on. Because…
Refer to Figure 187. Which of the following describe the externality pictured? Positive Externality in Production Negative Externality in Production Positive Externality in Consumption Negative Externality in Consumption
Question THREE Some reasons why resources could be allocated inefficiently by the market are negative externalities and positive externalities. Explain, using graphs, what the problem is in each case, and explain possible solutions to each problem. All of these problems might be described as arising due to poorly defined property rights. Explain the relationship of property rights to these instances where the market fails to allocate resources efficiently. Explain how a corrective tax can eliminate the inefficiency caused by a negative externality. Use a graph to assist your explanation.
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Say that you are a manager with the Transportation Security Administration (TSA). The table below shows fictional estimates of the marginal benefit and marginal cost of additional TSA security lines at Mahlon Sweet Field, the airport in Eugene, Oregon. Number of Marginal In this space, draw the graph of the marginal data from the left columns. Answer these questions below using the data table and graph. Benefit 3. Security Lines 1 2 3 4 5 6 $10,000 9,000 7,000 5,000 4,000 3,000 Marginal Cost $2,000 3,000 4,000 5,000 8,000 12,000 The surplus of the marginal benefit over cost for the second security line is $ and $ for the third security line. If your goal is to maximize total surplus, you WILL / WILL NOT (circle one) operate a third security line. The optimal number of TSA security lines is because this is where the marginal equals the marginal which maximizes total
Externalities - Definition and examples 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.
2. Aaron and his friends Britney, Carlos, Diana, Emily, Frank, Gwen, Hugo, Isabela, and Juliana have two choices for weekend activities. They can either go to the neighborhood park or get together in Aaron's hot tub. The park isn't much fun, which means that the benefits from being there are low on the friends' common utility scale. In fact, each of the friends receives a benefit equal to 6 "utils" from being at the park. This benefit doesn't depend on how many of the friends go to the park. Aaron's hot tub, on the other hand, can be fun, but the benefits of using it depend on how many of the friends are present. When the tub isn't too crowded, it's quite enjoyable. When lots of people show up, however, the tub is decidedly less pleasant. The relationship between benefit per person (measured in utils) and the number of people in the hot tub (denoted by T) is where AB denotes "average benefit." a) Using the above formula, compute AB for T = 1,2,3,...,10. Next compute total benefit from…
3. The Centers for Disease Control and Prevention (CDC) has a new vaccine against a disease and are trying to determine the optimal percentage of the population that should be vaccinated. They do not recommend vaccinating the whole population against the smallpox virus because the vaccine has undesirable, and sometimes fatal, side effects. Suppose the following table gives the data about the effects of the vaccine. a. Calculate the Marginal Benefit (in terms of how many extra lives are saved by the vaccine) and the marginal cost (in terms of how many extra lives are lost due to side effects) of each 10% increment of the vaccination. Write your answers on the appropriate columns above. b. Using marginal thinking, determine the optimal percentage of the population that should be vaccinated. Explain your answer.
QUESTION 16 16. Entering patient health care data into a database accessible to health care professionals across the medical profession and a wide region increases the ability to apply artificial intelligence to diagnostics and treatment of diseases. This is an example of a) Negative consumption externality. b) Positive consumption externality. c) Negative production externality. d) Positive production externality. QUESTION 17 17. Which of the following is an example of a negative consumption externality? a) water pollution impact of a paper plant b) honey production and pollination of fruit trees c) second-hand smoke d) vaccination against a communicable disease e) none of the above
1. Working with Numbers and Graphs Q1 Suppose the marginal costs of reading are constant at $5 per hour, while the marginal benefits of reading decline (over time) as more reading is performed. In particular, suppose the following table contains the marginal benefit associated with various levels of hours spent reading. Time Spent Reading Marginal Benefits (Hours) (Dollars per hour) 8 3 12 Assume the marginal-benefit curve is a straight line through the two points described in the table. MARGINAL COST, MARGINAL BENEFIT ($ per hour of reading per week) On the following graph, use the blue points (circle symbol) to plot the marginal-benefit curve for reading. Next, use the orange points (square symbol) to plot the marginal-cost curve for reading. Finally, use the black point (plus symbol) to indicate the point corresponding to the efficient amount of reading (that is, the point at which the net benefits of reading are maximized). 00 32 N 0 2 3 + 6 9 12 15 18 21 READING (Hours per week)…
E D A B Refer to the diagram. Assume that the horizontal axis measures the quantity of a good and the vertical axis measures the marginal-benefit and marginal- cost of the good. Assuming that the good represented here has at least some positive benefits and costs, what can we conclude about the marginal- benefit and marginal-cost curves? Multiple Choice О There is no combination of curves shown that could represent the optimal allocation of resources to this good.

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