### Diagram Analysis: Market with an ExternalityThe diagram represents a market affected by externalities and illustrates the impact of a large subsidy. It includes the following elements:- **Axes**: - The vertical axis (P) represents the price level, ranging from 0 to 10. - The horizontal axis (Q) represents the quantity, ranging from 0 to 10.- **Curves**: - **MSC (Marginal Social Cost)**: This curve is upward sloping, indicating the cost to society of producing an additional unit. It intersects with the vertical axis at approximately P = 5. - **S/MPC (Supply/Marginal Private Cost)**: This upward-sloping curve represents the private cost of production without considering externalities. It is less steep than MSC and also intersects the vertical axis at approximately P = 5. - **D/MB (Demand/Marginal Benefit)**: This downward-sloping curve represents the benefit to consumers from consuming an additional unit. It intersects the horizontal axis at Q = 9.- **Intersection Points**: - **Socially Optimal Point**: Where MSC intersects D/MB around P = 6 and Q = 5. - **Market Equilibrium without Externalities**: Where S/MPC intersects D/MB around P = 4.5 and Q = 7.### Problem StatementThe diagram queries about the social surplus when the quantity is 7 due to a large subsidy.### Interpretation- At a quantity of 7, the large subsidy presumably shifts the quantity to this level, increasing production beyond the socially optimal point.- Social surplus can be analyzed by considering the area between the demand curve and the MSC up to the quantity of 7. This representation helps in understanding how subsidies can lead to overproduction in the presence of externalities and impact social welfare.

According to the graph given above the production of the particular good is creating negative…

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ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

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Chapter1: Making Economics Decisions

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Sh 13 Subject - economics
Consider the market for bolts. Suppose that a hardware factory dumps toxic waste into a nearby river, creating a negative externality for those living downstream from the factory. Producing an additional ton of bolts imposes a constant marginal external cost (MEC) of $75 per ton. The following graph shows the demand (marginal private benefits, or MPB) curve and the supply (marginal private costs, or MPC) curve for bolts. Use the purple points (diamond symbol) to plot the marginal social costs (MS) curve when the marginal external cost is $75 per ton.
The table below shows the supply and demand conditions for a firm that will play trumpets on the streets when requested. Qs1 is the quantity supplied without social costs. Qs2 is the quantity supplied with social costs. How does accounting for the externality affect the equilibrium price and quantity? Price Qd Qs1 Qs2 $20 0 10 8 $18 1 9 7 $15 2.5 7.5 5.5 $12 4 6 4 $10 5 5 3 $5 7.5 2.5 0.5 What is the negative externality in this situation? Identify the equilibrium price and quantity when we account only for private costs. Identify the equilibrium price and quantity if we are able to account for social costs. Does it make sense that accounting for the negative externality results in a higher price? Explain your answer.
The following table shows how the marginal benefit of a service varies for five consumers. Quantity 1 2 3 4 Serkan 150 125 100 75 Asuman 125 100 75 50 Bahar 100 75 50 25 Murat 200 150 125 125 Meriç 600 400 200 150 Derive the demand curve for this service assuming that it is a public good. If marginal cost of the good is 850, what is the efficient output of the public good? If marginal cost of the good is 425, what is the efficient output of the public good? If marginal cost of the good is 850, what is the efficient output assuming it is private good?
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Only typed answer and please don't use chatgpt The inverse demand for leather is given by P = 50-0.5Q. The industry supply of leather is determined by its marginal cost: MC = 0.4Q. Unfortunately, the production of leather causes noxious chemical residue to leach into groundwater supplies. The external marginal cost caused by these residues grows with the amount of output, and is measured as EMC = 0.05Q. 1A. How many leather is produced in the free market if the externality is not corrected. B) What is the free market price of the leather if the externality is not corrected? C) What is the social marginal cost?
Price 10 9 8 7 6 Cr 4 3 2 1 0 0 100 200 300 400 500 600 Quantity Answers typed in all of the blanks will be automatically saved. X₂ X² Ω· equilibrium, the price is 3 PMC=S 700 800 900 1,000 1,100 1,200 SWTP Consider the attached graph showing a market with a positive externality. At the competitive market and the quantity is 600 D=WTP At this competitive equilibrium, consumer surplus is Type your answer here, producer surplus is the damage to the environment is Type your answer here Type your answer here, and the total external benefits caused in the production of the good is Type your answer here. Societal welfare - the sum of consumer surplus and producer surplus less
On graph Price 150,300,450 , 600,.................1500 Quantity 0,1,2,3,4,5...
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Consider a market with the following supply and demand. (It may help to draw a graph for these questions.) P 5 6 7 8 9 10 11 12 13 14 QS 200 300 400 500 600 700 800 900 1000 1100 QD 800 750 700 650 600 550 500 450 400 35 For the questions assume that there is a $3 external COST. 1. Now imagine that they use tradable allowances. If they cap the quantity at 400 what would the value of these allowance be in the market? (Assume the market is perfectly competitive and that "one allowance" lets you produce one unit of the good.) 2. What will they be worth if the quantity is capped at 500? 3. What if it is capped at 700?
3. The effect of negative externalities on the optimal quantity of consumption Consider the market for electricity. Suppose that a power plant dumps byproducts into a nearby river, creating a negative externality for those living downstream from the plant. Producing additional electricity imposes a constant per-unit external cost of $300. The following graph shows the demand (private value) curve and the supply (private cost) curve for electricity. Use the purple points (diamond symbol) to plot the social cost curve when the external cost is $300 per unit. 1000 900 800 700 600 500 400 300 200 PRICE (Dollars per unit of electricity) 100 ப 0 0 1 2 ° 3 0 ° 4 ° QUANTITY (Units of electricity) 5 6 Supply (Private Cost) Demand (Private Value) Social Cost ? The market equilibrium quantity is units of electricity, but the socially optimal quantity of electricity production is units. To create an incentive for the firm to produce the socially optimal quantity of electricity, the government…

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Consider the diagram below representing a market with an externality. What is the social surplus when the quantity is 7 as a result of a large subsidy? 10 MSC S/ MPC 7 6 4 3 D/MB 1 1 4 6. 7 8. 10 Q