PRICE OF CARS 1. Efficiency in the presence of externalities Cars impose many external costs on society: carbon dioxide emissions that contribute to air pollution, congestion on roadways, and so on. Therefore, the market equilibrium quantity of cars is not equal to the socially efficient quantity. The following graph shows the demand for cars (their marginal private benefit), the supply of cars (the marginal private cost of producing them), and the marginal social cost of cars, including both the marginal private cost and external costs. Use the black point (plus symbol) to indicate the market equilibrium quantity. Next, use the purple point (diamond symbol) to indicate the socially efficient quantity. Demand (MPB, MSB) QUANTITY OF CARS As a result, the market output is MSC + Market Output Socially Efficient Output Supply (MPC) the socially efficient output. (?) Which of the following policies could help the government achieve the socially efficient outcome? Check all that apply. ☐ offer a subsidy to producers equal to the vertical distance between the marginal private benefit curve and marginal social benefit curve Implement tradable pollution permits Offer a subsidy equal to the price at the efficient outcome Offer a subsidy to consumers equal to the vertical distance between the marginal private benefit curve and the marginal social benefit curve Introduce emission taxes
PRICE OF CARS 1. Efficiency in the presence of externalities Cars impose many external costs on society: carbon dioxide emissions that contribute to air pollution, congestion on roadways, and so on. Therefore, the market equilibrium quantity of cars is not equal to the socially efficient quantity. The following graph shows the demand for cars (their marginal private benefit), the supply of cars (the marginal private cost of producing them), and the marginal social cost of cars, including both the marginal private cost and external costs. Use the black point (plus symbol) to indicate the market equilibrium quantity. Next, use the purple point (diamond symbol) to indicate the socially efficient quantity. Demand (MPB, MSB) QUANTITY OF CARS As a result, the market output is MSC + Market Output Socially Efficient Output Supply (MPC) the socially efficient output. (?) Which of the following policies could help the government achieve the socially efficient outcome? Check all that apply. ☐ offer a subsidy to producers equal to the vertical distance between the marginal private benefit curve and marginal social benefit curve Implement tradable pollution permits Offer a subsidy equal to the price at the efficient outcome Offer a subsidy to consumers equal to the vertical distance between the marginal private benefit curve and the marginal social benefit curve Introduce emission taxes
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Transcribed Image Text:PRICE OF CARS
1. Efficiency in the presence of externalities
Cars impose many external costs on society: carbon dioxide emissions that contribute to air pollution, congestion on roadways, and so on. Therefore,
the market equilibrium quantity of cars is not equal to the socially efficient quantity. The following graph shows the demand for cars (their marginal
private benefit), the supply of cars (the marginal private cost of producing them), and the marginal social cost of cars, including both the marginal
private cost and external costs.
Use the black point (plus symbol) to indicate the market equilibrium quantity. Next, use the purple point (diamond symbol) to indicate the socially
efficient quantity.
Demand
(MPB, MSB)
QUANTITY OF CARS
As a result, the market output is
MSC
+
Market Output
Socially Efficient Output
Supply
(MPC)
the socially efficient output.
(?)
Which of the following policies could help the government achieve the socially efficient outcome? Check all that apply.
☐ offer a subsidy to producers equal to the vertical distance between the marginal private benefit curve and marginal social benefit curve
Implement tradable pollution permits
Offer a subsidy equal to the price at the efficient outcome
Offer a subsidy to consumers equal to the vertical distance between the marginal private benefit curve and the marginal social benefit
curve
Introduce emission taxes
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