Some economists think that gas taxes in Europe, averaging around $2.50 per gallon, are too high from the perspective of economic efficiency. Suppose that this is true, and that social welfare could be increased with slightly lower gas taxes. Present a welfare analysis graph of the gasoline market in Europe with a gas tax that is too high. Identify five areas in your graph: 1. Consumer surplus 2. Producer surplus 3. Externality damage 4. Tax revenues 5. The potential welfare gain if taxes were lowered to the "correct" level.

Some economists think that gas taxes in Europe, averaging around $2.50 per gallon, are too high from the perspective of economic efficiency. Suppose that this is true, and that social welfare could be increased with slightly lower gas taxes. Present a welfare analysis graph of the gasoline market in Europe with a gas tax that is too high. Identify five areas in your graph: 1. Consumer surplus 2. Producer surplus 3. Externality damage 4. Tax revenues 5. The potential welfare gain if taxes were lowered to the "correct" level.

MACROECONOMICS FOR TODAY

10th Edition

ISBN:9781337613057

Author:Tucker

Publisher:Tucker

Chapter4: Markets In Action

Section: Chapter Questions

Problem 19SQ

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Concept Question 5.11 The federal government often aids farmers through systems of price supports. Suppose that the government sets a price support of $6 per pound in the rice market. The graph on the right shows this situation. 10- The price of rice would be $ 5 per pound if there was no price support. In order to maintain the price support, the government will have to purchase 200 pounds of rice. 8- The cost of this program to the government is S $5 4- 2- D 300 400 500 Quantity of rice Price of rice
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how do we answer such questions?
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Suppose there are two residents in a neighborhood, and you know both of their demand curves for a public good. What would you have to do in order to figure out what the social demand curve? A.Multiply the two demand curves together B.Add their demand curves together C.Subtract the demand of the person with the lower valuation of the public good from the demand of the person with the higher valuation of the public good D.Subtract the demand of the person with the higher valuation of the public good from the demand of the person with the lower valuation of the public good
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suppose that scientists discover that this particular product has a significant Positive Externality. As we learned in class, the Demand curve is a depiction of marginal private benefit (MPB). However, the existence of the positive externality means that for every given output level, Marginal Social Benefit (MSB) is higher than Marginal Private Benefit (MPB). Add this MSB1 to the same graph you created for Question 5. Absent any government intervention, what are the equilibrium price P1, equilibrium quantity Q1, the resulting Consumer Surplus CS1, and the resulting Producer Surplus PS1? Indicate the Socially Optimal output, QSO1. Graphically indicate the size of Dead Weight Loss DWL1 if there is such a loss. In the narrative, please explain how you determined the socially optimal output level and the presence (or absence) of dead-weight loss in this situation. Is the market producing too much, too little, or just the right amount of the product with a positive externality in the…