The figure below shows a market in which there is an externality. The curve S2 is parallel to S1. Areas in the figures are numbered. What type of externality is shown in the figure and why is it a problem in economics?Identify the market equilibrium and the social equilibrium in the figure.If the market were to move from the market equilibrium to the social equilibrium, indicate the area(s) that represent the change in consumer surplus, the change in producer surplus, the change for third parties, and the net effect on total surplus. Does total surplus rise or fall?What would be the amount of a per-unit tax needed to fix the externality? Price60.0049.60140.802327.6019.232.4Quantity00

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Answered: externality

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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The figure below shows a market in which there is an externality. The curve S2 is parallel to S1. Areas in the figures are numbered.

What type of externality is shown in the figure and why is it a problem in economics?
Identify the market equilibrium and the social equilibrium in the figure.
If the market were to move from the market equilibrium to the social equilibrium, indicate the area(s) that represent the change in consumer surplus, the change in producer surplus, the change for third parties, and the net effect on total surplus. Does total surplus rise or fall?
What would be the amount of a per-unit tax needed to fix the externality?

Price
60.00
49.60
1
40.80
2
3
27.60
19.2
32.4
Quantity
00

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