Consider the market illustrated in the figure to the right for wood from a forest. Suppose the trees are a common resource. Supply curve S, represents the private cost of production and demand curve D₁ represents the private benefit from consumption. Show how the private market overuses common resources. 1.) Use the line drawing tool to first draw either a new supply (S₂) or demand (D₂) curve showing the true cost of cutting trees. Properly label this line. 2.) Use the point drawing tool to indicate the actual price and quantity in the private market. Label this point 'Actual equilibrium'. 3.) Use the point drawing tool to indicate the efficient equilibrium price and quantity. Label this point 'Efficient equilibrium'. Carefully follow the instructions above, and only draw the required objects. Benefit or cost (dollars per tree) Quantity (wood) 55 9

Consider the market illustrated in the figure to the right for wood from a forest. Suppose the trees are a common resource. Supply curve S, represents the private cost of production and demand curve D₁ represents the private benefit from consumption. Show how the private market overuses common resources. 1.) Use the line drawing tool to first draw either a new supply (S₂) or demand (D₂) curve showing the true cost of cutting trees. Properly label this line. 2.) Use the point drawing tool to indicate the actual price and quantity in the private market. Label this point 'Actual equilibrium'. 3.) Use the point drawing tool to indicate the efficient equilibrium price and quantity. Label this point 'Efficient equilibrium'. Carefully follow the instructions above, and only draw the required objects. Benefit or cost (dollars per tree) Quantity (wood) 55 9

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

See similar textbooks

Similar questions

2) The following table shows how the marginal benefit of a service varies for five consumers. a) Derive the demand curve for this service assuming that it is a public good. b) If marginal cost of the good is 850, what is the efficient output of the public good? c) If marginal cost of the good is 425, what is the efficient output of the public good? d) If marginal cost of the good is 850, what is the efficient output assuming it is private good?
Provide a reason why the marginal damages from some emissions may be increasing with the level of emissions (like in the figure above). Suppose the unregulated level of emissions is E3. What area(s) represent the total damages from unregulated emissions? Suppose emissions levels drop from E3 to E1. What area(s) represent the total benefits from the emissions reduction from E3 to E1? What point denotes the marginal damage from emissions at E2?
Parks confer many external benefits on society: open space, trees that reduce pollution, and so on. Therefore, the market equilibrium quantity of parks is not equal to the socially optimal quantity. The following graph shows the demand for parks (their private value), the supply of parks (the private cost of producing them), and the social value of parks, including both the private value and external benefits. 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.
Consider a lake found in the town of Center Barnstead, and then answer the questions that follow. The town has a campground whose visitors use the lake for recreation. The town also has a fish cannery that dumps industrial waste into the lake. This pollutes the lake and makes it a less desirable vacation destination. That is, the fish cannery's waste decreases the campground's economic profit. Suppose that the fish cannery could use a different production method that involves recycling water. This would reduce the pollution in the lake to levels safe for recreation, and the campground would no longer be affected. If the fish cannery uses the recycling method, then the fish cannery's economic profit is $1,500 per week, and the campground's economic profit is $1,800 per week. If the fish cannery does not use the recycling method, then the fish cannery's economic profit is $2,000 per week, and the campground's economic profit is $1,000 per week. These figures are summarized…
Two firms can reduce emissions at the marginal costs: MC1 = $12Q1 and MC2 = $4Q2, where Q1, and Q2 are the amount of emissions reduced by the first and second firms. Assume that with no control at all, each firm would be emitting 40 units of emissions (for aggregate emissions of 80 tons). a. Illustrate MC1 and MC2 on the graph. b. Find total costs for two firms with the tax. Hint. [Compute control cost with the tax that each firm will have to pay for the reduction of emission in b. and tax payments for the remaining emission.
Refer to Table 8-1 in Question 9. Suppose the cost to build the park is $24 per acre and that the residents have agreed to split the cost of building the park equally, as in Question 10. If the residents decide to build a park with size equal to the number of acres that maximizes total social surplus from the park, how much total surplus (i.e., net benefit) will Xavier receive? (enter just the number, no $)
3. Now reconsider the issue of soybeans from the perspective of Chinese consumers. Assume you are a Chinese consumer who drinks soymilk each day. Demonstrate using a graph how your consumption of soymilk differs from the socially optimal level. Is the price you pay for soymilk in current market conditions the correct amount, too high, or too low? Why? Ensure that you label your graph correctly (all curves, axes, price and quantities labeled). Show the deadweight loss of soymilk consumption, and what price should be charged for soymilk to move the amount of soymilk you drink to the optimal level.
4. Two people, A and B, are deciding whether to put effort into producing a public good or not. Each person, i, can either choose no effort (s; = 0) or yes effort (s; 1). The total public good produced is G = max{SA, SB}. The cost of doing no effort is 0. The cost of doing yes effort is 1.5. The payoff to a player is the total public goods provided (G) minus her personal costs. i. Given a choice by player B, SB, write down player A's utility from choosing no effort. Given a choice by player B, SB, write down player A?s utility from choosing yes effort.
5) Refer to the below diagram of the market for product X. Curve S, embodies all costs (including spillovers) and D, embodies all benefits (including spillovers) associated with the production and consumption of X. Assuming the equilibrium output is Q2, we can conclude that the existence of spillover: Price 0 S₁ I Q₁QQ₂ Quantity A) costs have resulted in an over-allocation of resources to X. B) benefits have resulted in an over-allocation of resources to X. C) costs have resulted in an under-allocation of resources to X.
Lecture: Externality - Pigou8. All-Leather is a tanning company located on Lake Michigan in Chicago. Its total cost functionis C(QA) = 125 + 8QA + 5QA2, where QA is leather production per week in thousands of pounds.a) If leather sells for $408 per thousand pounds, how much leather will All-Leather produce?How much profit does All-leather earn?Enjoy is a beverage company located on Lake Michigan near All-Leather in Chicago. Enjoy’sproduction of beverages is negatively affected by water pollution from All-Leather’s productionof leather. Enjoy’s total cost function to produce beverages isC(QE) = 10QE +3QE2 + 3QA2where QE is Enjoy’s weekly production of beverages, in thousandsof gallons and, as above, QA is All-Leather’s weekly production of leather.b) Is this an example of a pecuniary externality or a real externality? Explain.c) What is the extra cost to Enjoy from an additional thousand tons of leather production by AllLeather (i.e., the external marginal cost of an extra unit of QA…
5.. "Since a public good is enjoyed by all members of society, willingness to pay for the good will not diminish as the amount produced increases." Evaluate and use an example to support your answer. This statement is (correct incorrect). Public goods face (increasing, constant, diminishing ) returns like any other good. Consider the number of highways in a town, for example. Citizens of a town are very willing to pay for the first highway, as it produces large gains to the town. Successive highways produce (more and more, less and less ) willingness to pay because the citizens face lower and lower gains from the increased number of highways. In a town of, say 20,000, 15 highways (would, would not) produce much more benefit than just 2 or 3 highways because of ( increasing, constant, diminishing ) returns.
7.