Consider the market illustrated in the figure to the right. Supply curve S₁ represents the private cost of production and demand curve D₁ represents the private benefit from consumption. Suppose consumption of this good creates a positive externality. Show how the externality affects the market. 1.) Use the line drawing tool to draw either a new supply (S₂) or demand (D₂) curve incorporating the positive externality in consumption. Properly label this line. 2.) Use the point drawing tool to indicate the market equilibrium price and quantity. Label this point 'Market 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. Price Quantity S₁ D₁

ENGR.ECONOMIC ANALYSIS
14th Edition
ISBN:9780190931919
Author:NEWNAN
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Chapter1: Making Economics Decisions
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Consider the market illustrated in the figure to the right. Supply curve S₁
represents the private cost of production and demand curve D₁ represents the
private benefit from consumption. Suppose consumption of this good creates a
positive externality. Show how the externality affects the market.
1.) Use the line drawing tool to draw either a new supply (S₂) or demand (D₂)
curve incorporating the positive externality in consumption. Properly label this line.
2.) Use the point drawing tool to indicate the market equilibrium price and quantity.
Label this point 'Market 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.
Price
Quantity
S₁
D₁
N
Transcribed Image Text:Consider the market illustrated in the figure to the right. Supply curve S₁ represents the private cost of production and demand curve D₁ represents the private benefit from consumption. Suppose consumption of this good creates a positive externality. Show how the externality affects the market. 1.) Use the line drawing tool to draw either a new supply (S₂) or demand (D₂) curve incorporating the positive externality in consumption. Properly label this line. 2.) Use the point drawing tool to indicate the market equilibrium price and quantity. Label this point 'Market 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. Price Quantity S₁ D₁ N
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