Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Question
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 inproducer 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?

Transcribed Image Text:Price
60.00
49.60
1
40.80
2
3
27.60
19.2
32.4
Quantity
00
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