Answered: Give examples of positive and negative…

Business

Economics

Give examples of positive and negative production and consumption externalities. (4 examples in total)

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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9. Private solutions to correct for externalities Consider the following scenario: Suppose that a chicken farm uses a nearby stream to dispose of the wastes released by its chickens. These wastes flow downstream into a lake that has become thick with algae and polluted by the minerals in the waste matter. The local office of a nonprofit environmental organization collects enough donations to fund a campaign to stop the farm's pollution. Which of the following types of private solutions to the externality of pollution has occurred in this case? O Contracts O Charities O Integration of different types of businesses through merger or ac the market system has a crisis O Moral codes and social sanctions the government should never step in a private solution is not feasible It's important to note that sometimes private solutions to externalities do r communications barriers or social customs are important enough relative to the potential gains involved that
2. The effect of negative externalities on the efficient quantity of consumption Consider the market for paper. Suppose that a paper factory dumps toxic waste into a nearby river, creating a negative externality for those living downstream from the factory. Producing an additional ton of paper imposes a constant external cost of $385 per ton. The following graph shows the demand (marginal private benefit) curve and the supply (marginal private cost) curve for paper. Use the purple points (diamond symbol) to plot the marginal social cost curve when the external cost is $385 per ton. PRICE (Dollars per ton of paper) 1100 990 880 770 660 Supply (MPC) 550 440 330 220 110 0 + 0 1 2 3 4 Demand (MPB) 5 8 7 QUANTITY (Tons of paper) Marginal Social Cost The market equilibrium quantity is tons of paper, but the socially efficient quantity of paper production is tons. To create an incentive for the firm to produce the socially efficient quantity of paper, the government could impose a of paper.…
10 If there is a positive externality a tax on the good can lead the market to produce the efficient quantity a subsidy on the good can lead the market to produce the efficient quantity too much will be produced by the market than taxes cannot reduce the amount of output produced by the market
6. Externalities Yakov plants a variety of trees, shrubs, and flowers in his yard. The landscaping beautifies the neighborhood. Which of the following is true? This will generate a positive externality. O This will not generate any externalities. The cost to Yakov of planting is a negative externality.
3. The effect of negative externalities on the optimal quantity of consumption Consider the market for paper. Suppose that a paper factory dumps toxic waste into a nearby river, creating a negative externality for those living downstream from the factory. Producing an additional ton of paper imposes a constant marginal external cost (MEC) of $525 per ton. The following graph shows the demand (marginal private benefits, or MPB) curve and the supply (marginal private costs, or MPC) curve for paper. Use the purple points (diamond symbol) to plot the marginal social costs (MSC) curve when the marginal external cost is $525 per ton. PRICE (Dollars per ton of paper) 1500 1350 1200 1050 900 750 600 450 300 150 0 0 X O 1 2 4 QUANTITY (Tons of paper) 3 5 The market equilibrium quantity is 8 Supply (MPC) Demand (MPB) 7 MSC (?) tons of paper, but the socially optimal quantity of paper production is To create an incentive for the firm to produce the socially optimal quantity of paper, the…
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(Figure: Nail Polish Externalities) In the figure, Sp (MPC) represents the private supply curve of a particular type of nail polish, whose manufacture is associated with the release of toxic chemicals into the atmosphere. SS (MSC) includes the costs of that toxicity borne by others. What area represents the total externality cost of this nail polish? a) abdc b) abef c) defc d) the total externality cost is unknown. (the answer is NOT b)
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4. Understanding different policy options to correct for negative externalities Carbon dioxide emissions have been linked to melting of sea ice. The following table lists some potential regulations targeting the amount of airborne carbon dioxide. For each policy listed, identify whether it is a command-and-control policy (regulation), tradable permit system, corrective subsidy, or corrective tax. Tradable Permit System Public Policy . The government limits total carbon-dioxide emissions by all factories to 250,000 tons per ten years. Each individual factory is given the right to emit 280 tons of carbon dioxide, and factories may buy and sell these rights in a marketplace. Trees take carbon dioxide out of the air and convert it to oxygen, so the government funds a tree-planting initiative by offering $500 to any citizen who plants a tree. The government orders every factory to adopt a new technology, which reduces carbon-dioxide emissions into the atmosphere. The government charges…
5. The effect of external costs on the efficient level Consider the market for bolts. Suppose that a hardware factory dumps toxic waste into a nearby river, creating a negative externality for those living downstream from the factory. Producing an additional ton of bolts imposes a constant external cost of $245 per ton. The following graph shows the demand (private value) curve and the supply (private cost) curve for bolts. Use the purple points (diamond symbol) to plot the social cost curve when the external cost is $245 per ton. PRICE (Dollars per ton of bolts) 700 630 560 490 420 350 280 210 140 70 0 0 O 0 1 Supply (Private Cost) X O O O Demand (Private Value) 2 3 4 5 QUANTITY (Tons of bolts) The market equilibrium quantity is 6 Social Cost 7 ? tons of bolts, but the socially optimal quantity of bolt production is tons.
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3. The effect of negative externalities on the optimal quantityof consumption Consider the market for paper. Suppose that a paper factory dumps toxic waste into a nearby river, creating a negative externality for those living downstream from the factory. Producing an additional ton of paper imposes a constant external cost of $315 per ton. The following graph shows the demand (private value) curve and the supply (private cost) curve for paper. Use the purple points (diamond symbol) to plot the social cost curve when the external cost is $315 per ton. (? 900 810 Social Cost 720 630 540 450 Supply (Private Cost) 360 270 Demand 180 (Private Value) 90 1 2 6 QUANTITY (Tons of paper) The market equilibrium quantity is v tons of paper, but the socially optimal quantity of paper production is v tons. To create an incentive for the firm to produce the socially optimal quantity of paper, the government could impose a of S per ton of paper. PRICE (Dollars perton of paper)