Answered: Greater consumption of alcohol leads to…

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Question

Greater consumption of alcohol leads to more motor
vehicle accidents and, thus, imposes costs on people
who do not drink and drive.
a. Illustrate the market for alcohol, labeling the
demand curve, the social-value curve, the
supply curve, the social-cost curve, the market
equilibrium level of output, and the efficient level
of output.
b. On your graph, shade the area corresponding to
the deadweight loss of the market equilibrium.
(Hint: The deadweight loss occurs because some
units of alcohol are consumed for which the social
cost exceeds the social value.) Explain.

Definition Video Formula Definition Phenomenon in which market supply and demand balance each other. Market equilibrium is the economic state in which the market demand curve intersects the market supply curve, giving us the equilibrium price and equilibrium quantity for which a commodity can be sold and purchased in an economy. When market equilibrium is achieved, it suggests that all resources have been allocated efficiently and that there is just a distribution of income and resources in the economy. Video Formula

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