Imagine a market where there is a positive externality in consumption. The private inverse demand function for the good is: D_private: P_D = 12 - Q_D. The social inverse demand function that incorporates the positive externality is: D_social: P_D = 24-Q_D. The social (and private) inverse supply function is: S_social: P_S = 3 + Q_S. A_ would eliminate the deadweight loss from the externality, which equals Select one: a. $12 per unit subsidy; $18. b. $12 per unit subsidy; $36. c. $12 per unit tax; $36. d. $6 per unit subsidy; $18. e. $12 per unit tax; $18.

Imagine a market where there is a positive externality in consumption. The private inverse demand function for the good is: D_private: P_D = 12 - Q_D. The social inverse demand function that incorporates the positive externality is: D_social: P_D = 24-Q_D. The social (and private) inverse supply function is: S_social: P_S = 3 + Q_S. A_ would eliminate the deadweight loss from the externality, which equals Select one: a. $12 per unit subsidy; $18. b. $12 per unit subsidy; $36. c. $12 per unit tax; $36. d. $6 per unit subsidy; $18. e. $12 per unit tax; $18.

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Concept explainers

Market Failure Analysis

To understand Market failure, we need to first understand welfare economics. An Italian economist, Vilfredo Pareto stated that allocation of resources in an efficient manner such that an economic change, which harms no one and makes someone better off, indicates an increase in social welfare. It is also called Pareto Optimality, where resources cannot further be reallocated without harming one. This does not apply to those economic changes, which harm some and benefit others. social welfare increases if the utility of any of its members' increases and none decrease in the economy.

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Imagine a market where there is a positive externality in consumption. The private inverse demand
function for the good is:
D_private: P_D = 12 - Q_D.
The social inverse demand function that incorporates the positive externality is:
D_social: P_D = 24 - Q_D.
The social (and private) inverse supply function is:
S_social: P_S = 3 + Q_S.
A
would eliminate the deadweight loss from the externality, which equals
Select one:
a. $12 per unit subsidy; $18.
b. $12 per unit subsidy; $36.
c. $12 per unit tax; $36.
d. $6 per unit subsidy; $18.
e. $12 per unit tax; $18.

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