Cigarette smoking imposes many external costs on society: secondhand smoke, the litter on the street from discarded butts, and so on. Therefore, the market equilibrium quantity of cigarettes is not equal to the socially optimal quantity. The following graph shows the demand for cigarettes (their marginal private benefits), the supply of cigarettes (the marginal private costs of producing them), and the marginal social costs of cigarettes, including both the marginal private costs and external costs. 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. Finally, use the grey polygon (star symbol) to indicate the area representing market failure. PRICE OF CIGARETTES MSC Supply (MPC) Demand (MPB, MSB) QUANTITY OF CIGARETTES Market Output Socially Optimal Output Market failure ?
Cigarette smoking imposes many external costs on society: secondhand smoke, the litter on the street from discarded butts, and so on. Therefore, the market equilibrium quantity of cigarettes is not equal to the socially optimal quantity. The following graph shows the demand for cigarettes (their marginal private benefits), the supply of cigarettes (the marginal private costs of producing them), and the marginal social costs of cigarettes, including both the marginal private costs and external costs. 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. Finally, use the grey polygon (star symbol) to indicate the area representing market failure. PRICE OF CIGARETTES MSC Supply (MPC) Demand (MPB, MSB) QUANTITY OF CIGARETTES Market Output Socially Optimal Output Market failure ?
Chapter8: Market Failure
Section: Chapter Questions
Problem 2P: Draw a standard supply and demand diagram for televisions, and indicate the equilibrium price and...
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![4. Efficiency in the presence of externalities
Cigarette smoking imposes many external costs on society: secondhand smoke, the litter on the street from discarded butts, and so on. Therefore, the
market equilibrium quantity of cigarettes is not equal to the socially optimal quantity. The following graph shows the demand for cigarettes (their
marginal private benefits), the supply of cigarettes (the marginal private costs of producing them), and the marginal social costs of cigarettes,
including both the marginal private costs and external costs.
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. Finally, use the grey polygon (star symbol) to indicate the area representing market failure.
PRICE OF CIGARETTES
MSC
Supply
(MPC)
Demand
(MPB, MSB)
QUANTITY OF CIGARETTES
+
Market Output
→
Socially Optimal Output
Market failure](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2Fdd4d4d48-24e7-4b18-a77f-cc5d55c08eed%2F05a76b23-3a39-417c-a28f-d76f5674100a%2Fqoybays_processed.jpeg&w=3840&q=75)
Transcribed Image Text:4. Efficiency in the presence of externalities
Cigarette smoking imposes many external costs on society: secondhand smoke, the litter on the street from discarded butts, and so on. Therefore, the
market equilibrium quantity of cigarettes is not equal to the socially optimal quantity. The following graph shows the demand for cigarettes (their
marginal private benefits), the supply of cigarettes (the marginal private costs of producing them), and the marginal social costs of cigarettes,
including both the marginal private costs and external costs.
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. Finally, use the grey polygon (star symbol) to indicate the area representing market failure.
PRICE OF CIGARETTES
MSC
Supply
(MPC)
Demand
(MPB, MSB)
QUANTITY OF CIGARETTES
+
Market Output
→
Socially Optimal Output
Market failure
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