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Discuss the socially optimal quantity of a public good? Explain using a diagram.
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- The equations below represent the demand and supply curves for annual gym memberships in a city. qD= 500 − 2p, qS=0.5p − 50 Because physical activity leads to better health, the city estimates that each annual gym membership saves $30 of public spending on healthcare per year (a positive externality). a. In a graph, show the market and the socially optimal equilibria for annual gym memberships in this city. Does the market equilibrium result in under- or over-consumption of memberships? What is the deadweight loss associated with the market failure in this situation? b. Would you recommend this city to implement a subsidy (a negative Pigouvian tax) to correct this market failure? If so, how much would be the subsidy per unit? What would be the effects of your proposed policy on the quantity, price, and aggregate welfare?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.Suppose that speeding imposes externalities on other people resulting in a social cost of $50. A town is considering hiring an extra police officer to give out speeding tickets. If we want to maximize social welfare (absent enforcement costs), which of the following statements are true? (Assume risk neutral drivers.) What happens to the socially optimal cost of the speeding ticket if the town decides to hire the police officer? a) It goes down b) It goes up c) The amount that it goes down depends on salary of the police officer d) The amount if goes up depends on the salary of the police officer e) None of the above
- The residents of Orléans, Ontario enjoy seeing fireworks over Petrie Island on Canada Day. Each of the community's 1000 residents places a $5 value on the experience. a. What are the defining characteristics of a public good? b. If the cost of putting on a fireworks display is $1000. Would it be socially optimal to have a Canada Day fireworks display in Orléans? c. Would the private market result in a fireworks display? d. Could governments provide a solution to achieving the efficient level of production?Use the table below to answer the questions: A. Find the equilibrium price, assuming sellers ignore negative externalities. B. Find the equilibrium quantity, assuming sellers ignore negative externalities. C. Find the optimal price, including external costs. Find the optimal quantity, including external costs.We recognize four types of goods, namely; private goods, public goods, club goods, and shared resources. Roads are an example of a public good. When the congestion gets worse, will the roads remain public goods or turn into club goods or common goods? Explain
- The production of fabric generates toxic effluents related to the dyes used. This is typically disposed of with wastewater, which generates pollution. If the government does not intervene, the market for fabric has an equilibrium price of $250 per roll and an equilibrium quantity of 10,000 rolls. a.How would the socially optimal quantity of fabric compare to the free market equilibrium quantity of 10,000 rolls? Why? b. Using a supply and demand graph show the effect on social welfare of allowing the market for fabric to operate without government intervention. Label all the curves and relevant points on your graph. c. Would a government subsidy or tax help the market achieve the social optimum? Explain. Show the necessary subsidy/tax on your graph. d. Explain how this intervention helps achieve the social optimum and what information would be necessary to implement it.Air horns impose many external costs on society: the risk of being deafened, the annoyance of being awakened in the middle of the night, and so on. Therefore, the market equilibrium quantity of air horns is not equal to the socially optimal quantity. The following graph shows the demand for air horns (their private value), the supply of air horns (the private cost of producing them), and the social cost of air horns, including both the private cost 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.What are the two characteristics of public goods? What is the free-rider problem as it related to public goods? Is U.S. border patrol a public good or a private good? Explain.
- The figure below shows supply and demand for planting trees, based on private costs and benefits. Trees sequester carbon, meaning that they help counteract pollutants that contribute to climate change. Price of trees (S) 22114 20 18 16 12 10 8 6 4 2 0 MCpvt D-MBMB, 10 20 30 40 50 60 70 80 90 100 Quantity of trees Tools Social Cost DWLThe market for some public good consists of only two consumers, Elena and Talia. The marginal cost of providing this good is described by MC = 3 + 5Q. Elena's MWTP = 40 - 3Q and Talia's MWTP = 10 - 2Q. What is the socially-efficient quantity of this good? Round to the nearest whole unitEfficiency in the presence of externalities Air horns impose many external costs on society: the risk of being deafened, the annoyance of being awakened in the middle of the night, and so on. Therefore, the market equilibrium quantity of air horns is not equal to the socially optimal quantity. The following graph shows the demand for air horns (their private value), the supply of air horns (the private cost of producing them), and the social cost of air horns, including both the private cost 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.
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