Problem 1: ExternalityThe weekly supply and demand for packs of cigarettes in the United States is given in thefigure below. Suppose cigarette smoking causes an external cost on nonsmokers, as shownby the social benefit curve on the graph.Price ($)363432302826S=MC=MC24pvtSI22201816141210864MBpvtsocial2MB4 6 810 12 14 16 18 20 22 24 26 28 30 32Pack of cigarettes (millions)a. This is a[ Select ][ Select ]externality. b. How much is the external cost (in $ per pack)?2$c. Without any intervention into the market, how many million packs of cigarettes areconsumed per week?milliond. What is the efficient (or socially optimal) number of cigarette packs?millione. Without intervention in this market, what is the deadweight loss that arises as a result ofthe externality? Locate the area on the graph and calculate the dollar value.2$millionf. If the government wants to use a Pigovian tax to internalize the externality and bring themarket to the socially optimal quantity, what would the amount of the tax need to be inorder to eliminate the deadweight loss?per pack%24

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Problem 1: Externality The weekly supply and demand for packs of cigarettes in the United States is given in the figure below. Suppose cigarette smoking causes an external cost on nonsmokers, as shown by the social benefit curve on the graph. Price ($) 36 34 32 30 28 26 S=MC =MC pvt SI 24 22 20 - 18 16 - 14 - 12 10 8- 6- 2- MB MB pvt 2 4 6 8 10 12 14 16 18 20 22 24 26 28 30 32 Pack of cigarettes (millions) a. This is a [ Select ] [ Select ] V externality.

Problem 1: Externality The weekly supply and demand for packs of cigarettes in the United States is given in the figure below. Suppose cigarette smoking causes an external cost on nonsmokers, as shown by the social benefit curve on the graph. Price ($) 36 34 32 30 28 26 S=MC =MC pvt SI 24 22 20 - 18 16 - 14 - 12 10 8- 6- 2- MB MB pvt 2 4 6 8 10 12 14 16 18 20 22 24 26 28 30 32 Pack of cigarettes (millions) a. This is a [ Select ] [ Select ] V externality.

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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