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 ?

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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