(b) An art museum is a good example of a public good that is best provided through government support. (c) Public goods are a market failure because the cost of providing them cannot be measured that is, the failure is on the producer-side of the potential market for public goods.
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- True or false; explain: (a) In a competitive market, the incidence of an excise tax ("who really pays the tax") is on consumers, if demand is perfectly inelastic. (b) An art museum is a good example of a public good that is best provided through government support. (c) Public goods are a market failure because the cost of providing them cannot be measured - that is, the failure is on the producer-side of the potential market for public goods.(a) Shortly explain the relationship between elasticity of a good and the consumption tax rate it should be imposed upon it. (b) What do we man by rivalry of a good? Give examples of rival and non-rival goods. To what extent is rivalry a crucial aspect of a public good? (c) Give examples of positive and negative production and consumption externalities. (so you need to give 4 examples in total) (d) Explain whether the Coase theorem is useful in practice. (e) Define vertical and horizontal equity objectives of a tax system. Which one do you think is more important in establishing equity and/or fairness? (f) What are the political implications of the First and Second Welfare theorems? Shortly explain. 3The terms spillover or externality refer to__A) black-market economic activity.B) the impact on markets of imported goods.c) the cost or benefit of a market activity borne by a third party.D) the inequitable distribution of income.
- (a) Explain the difference between a positive externality and a negative externality and why each result in an equilibrium point that is not optimal for society. (b) which externality results in an equilibrium quantity that is higher than the optimal social quantity of a good? (c) how can the impact of the externality in part b be corrected?1a) Most U.S. states impose gasoline taxes as a way to collect revenue. Assume that there are no market failures in this market. Show how a gasoline tax will create deadweight loss and reduce efficiency. b) Now suppose that gasoline consumption entails a negative externality through greenhouse gas emissions. Show how a properly designed gasoline tax could improve efficiency given this externality. c) What would you need to know to determine the efficient size of a state’s gasoline tax? d) True or False? If a state’s gasoline tax is higher than the amount needed to restore efficiency, it is clear evidence of a policy failure.A market is described by the following supply and demand curves:Supply: P=0.25QDemand: P=300-0.75Q(a) Solve for the equilibrium price and quantity and calculate the total economic surpluswith a diagram.(b) Suppose government sets a price floor of $90. With the price regulation, calculatewith a diagram the sizes of shortage (or surplus), consumer surplus, produce surplusand deadweight loss.(c) Instead of a price floor, government regulates the price by a price ceiling of $90.Predict the change of market efficiency if the government imposes a price ceiling of$90.(d) Instead of a price control, government levies a $20 excite tax on producers. Formulatethe new supply curve and solve for the new equilibrium price and quantity. Calculatewith a diagram the tax revenue and the tax incidences for both producers andconsumers. Discuss how buyers and sellers share the tax burden by applying relevanttheories and an appropriate diagram.
- Which of the following instruments is government most likely to apply when confronted with a positive externality? (a) Subsidies. (b) Taxation. (c) Coase bargaining. (d) Usage fees.2. A market has the inverse demand curve P ^ D * (q) = 300 - 1/2 * q and an inverse supply curve of P ^ D * (q) = 5/2 * q but a total negative externality of E(q) = - 60q (a) Find the competitive equilibrium in this market. (b) Find the marginal social value curve (the sum of the marginal externalities and inverse demand). (c) Find the surplus-maximizing quantity. (d) Calculate the deadweight loss of the competitive equilibrium. (e) Find the optimal per-unit tax for this market. 3. Repeat parts (c) through (f) assuming there is actually a positive externality E(q) = 60q(11) Consider a market with private marginal benefit (quantity demanded) given by PMB = 400 – 4Q, social marginal benefit given by SMB = 400 – 2Q and private marginal cost (quantity supplied) given by PMC = 40 + 4Q. Assume PMC = SMC. (a) Graph these PMB, SMB, and PMC curves. (b) What kind of externality is present? (c) Find the equilibrium price and quantity if producers only respond to private mar- ginal costs.
- A3) Consider production involving a positive extemality. Which one of the following statements is true? a) Without government intervention the market will produce excess supply. b) Marginal social cost is higher than marginal private cost. e) Marginal social benefit is less than marginal private benefit. d) A subsidy to producers could increase production to the socially optimum level. e) A Pigouvian tax could be imposed on the producer to achieve the socially optimum level of production.1) How can a government respond to externalities? A) With command and control policies B) With command and control policies, and market-based policies C) With market restriction policies ______________________________ Which of the following options are market failures: A) Producer surplus and market power B) Externalities and consumer surplus C) Market power and externalities ______________________________ Which of the following statements is incorrect? A) A minimum price that imposes an active restriction causes a surplus, which may give rise to undesirable rationing mechanisms. B) An effect of an active constraint in a competitive market when a government sets a price ceiling is a surplus of the good in question. C) A price ceiling that causes an active constraint in a competitive market can cause long lines to obtain the good. ______________________________ The market for donuts is in equilibrium, with an equilibrium price of $2 per donut and an…(1) Which of the following statements is TRUE? I. In the face of a positive externality, a perfectly competitive market produces less than the socially optimal quantity of output.II. If vaccinations create an external marginal benefit, the marginal social benefit of vaccinations will always exceed their private marginal benefit.III. In unregulated markets, negative externalities create deadweight losses, but positive externalities do not.IV. In the face of a negative externality, a perfectly competitive market produces more than the socially optimal quantity of output.A. I, II and IV are correctB. III only is correct C. I and III are correctD. I and IV are correct (2) Fill the missing spaces in the sentence below: The fact that market outcomes fail to achieve Pareto efficiency in the case of ______, implies that ______.A. externality; government regulation is necessaryB. natural monopoly; private property rights are unethical C. public goods; government action may improve the…