Quantity (1000's of boxes) 1000 2000 The following table shows the Marginal Costs and Marginal Private Benefits associated with different levels of production for pistol ammunition in the US. Marginal Private Cost $14 16 Marginal Private Benefit 26 24 3000 4000 5000 6000 18 20 22 24 22 20 18 16 a.) Given the information above, sketch the market equilibrium.. b.) Suppose that there is an externality associated with the consumption of pistol ammunition such that there is an External Benefit equal to negative 8 dollars per box. On the diagram above. show the resulting Marginal Social Benefit curve and the Socially Optimal Level of output. c.) Suppose that there is a tax imposed on the consumption of ammunition that exactly counter-acts this negative externality. Label the after-tax output and prices levels on the diagram. and calculate the Consumer and Producer burden from this tax. d.) Explain why, unlike in many cases, there will not be a dead-weight loss due to this tax.
Quantity (1000's of boxes) 1000 2000 The following table shows the Marginal Costs and Marginal Private Benefits associated with different levels of production for pistol ammunition in the US. Marginal Private Cost $14 16 Marginal Private Benefit 26 24 3000 4000 5000 6000 18 20 22 24 22 20 18 16 a.) Given the information above, sketch the market equilibrium.. b.) Suppose that there is an externality associated with the consumption of pistol ammunition such that there is an External Benefit equal to negative 8 dollars per box. On the diagram above. show the resulting Marginal Social Benefit curve and the Socially Optimal Level of output. c.) Suppose that there is a tax imposed on the consumption of ammunition that exactly counter-acts this negative externality. Label the after-tax output and prices levels on the diagram. and calculate the Consumer and Producer burden from this tax. d.) Explain why, unlike in many cases, there will not be a dead-weight loss due to this tax.
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Transcribed Image Text:Quantity (1000's of boxes)
1000
2000
The following table shows the Marginal Costs and Marginal Private Benefits associated with
different levels of production for pistol ammunition in the US.
Marginal Private Cost
$14
16
Marginal Private Benefit
26
24
3000
4000
5000
6000
18
20
22
24
22
20
18
16
a.)
Given the information above, sketch the market equilibrium..
b.) Suppose that there is an externality associated with the consumption of pistol ammunition
such that there is an External Benefit equal to negative 8 dollars per box. On the diagram above.
show the resulting Marginal Social Benefit curve and the Socially Optimal Level of output.
c.)
Suppose that there is a tax imposed on the consumption of ammunition that exactly
counter-acts this negative externality. Label the after-tax output and prices levels on the diagram.
and calculate the Consumer and Producer burden from this tax.
d.) Explain why, unlike in many cases, there will not be a dead-weight loss due to this tax.
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