Table 10-1 Quantity (Units) 1 2 3 4 5 6 7 OOOC $2 $3 $9 Private Value O $10 (Dollars) 14 13 12 11 10 9 8 Private Cost (Dollars) Refer to Table 10-1. How large would a corrective tax need to be to move this market from the equilibrium outcome to the socially optimal outcome? 10 11 12 13 14 15 16 External Cost (Dollars) 2 2 2 2 2 2 2

Table 10-1 Quantity (Units) 1 2 3 4 5 6 7 OOOC $2 $3 $9 Private Value O $10 (Dollars) 14 13 12 11 10 9 8 Private Cost (Dollars) Refer to Table 10-1. How large would a corrective tax need to be to move this market from the equilibrium outcome to the socially optimal outcome? 10 11 12 13 14 15 16 External Cost (Dollars) 2 2 2 2 2 2 2

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Only typed answer You are an industry analyst that specializes in an industry where the market inverse demand is P = 100 - 3Q. The external marginal cost of producing the product is MCExternal = 6Q, and the internal cost is MCInternal = 14Q. Instruction: Round your answers to the nearest two decimal places. a. What is the socially efficient level of output? units b. Given these costs and market demand, how much output would a competitive industry produce? units c. Given these costs and market demand, how much output would a monopolist produce? units d. Which of the following are actions the government could take to induce firms in this industry to produce the socially efficient level of output. Instructions: You may select more than one answer. Click the box with a check mark for the correct answers and click twice to empty the box for the wrong answers. You must click to select or deselect each option in order to receive full credit. Pollution taxes…
Price (dollars per unit) PA P3 P₂ P₁ 0 MSC Figure 16.2.1 MC Q₂ Quantity (units per day) 72) Refer to Figure 16.2.1. The figure shows the marginal private cost curve, the marginal social cost curve and the market demand curve. If the market is unregulated, then A) the externality is eliminated. B) the quantity produced is greater than the efficient quantity. C) the quantity produced is less than the efficient quantity. D) the quantity produced is efficient but price is too low. E) the quantity produced is efficient but the price is too high.
3. The effect of negative externalities on the optimal quantityof consumption Consider the market for pharmaceuticals. Suppose that a pharmaceutical factory dumps toxic waste into a nearby river, creating a negative externality for those living downstream from the factory. Producing additional pharmaceuticals imposes a constant per-unit external cost of $280. The following graph shows the demand (private value) curve and the supply (private cost) curve for pharmaceuticals. Use the purple points (diamond symbol) to plot the social cost curve when the external cost is $280 per unit. PRICE (Dollars per unit of pharmaceuticals) 800 720 640 560 480 400 320 240 160 80 O 1 2 3 □ O O ㅁ 4 Supply (Private Cost) Demand (Private Value) 5 6 7 QUANTITY (Units of pharmaceuticals) Social Cost ? The market equilibrium quantity is units of pharmaceuticals, but the socially optimal quantity of pharmaceuticals production is units. To create an incentive for the firm to produce the socially optimal…
3. The effect of negative externalities on the optimal quantity of consumption Consider the market for steel. Suppose that a steel manufacturing plant dumps toxic waste into a nearby river, creating a negative externality for those living downstream from the plant. Producing an additional ton of steel imposes a constant marginal external cost (MEC) of $165 per ton. The following graph shows the demand (marginal private benefits, or MPB) curve and the supply (marginal private costs, or MPC) curve for steel. Use the purple points (diamond symbol) to plot the marginal social costs (MSC) curve when the marginal external cost is $165 per ton. PRICE (Dollars per ton of steel) 1100 990 880 770 660 550 440 330 220 110 0 0 + 1 O ☐ O 2 0 H 3 ▬ The market equilibrium quantity is O 4 5 QUANTITY (Tons of steel) ☐ ☐ 6 Supply (MPC) Demand (MPB) 7 MSC ? tons of steel, but the socially optimal quantity of steel production is To create an incentive for the firm to produce the socially optimal quantity…
Refer to Figure. Which of the following statements is correct? Price 22 24 22 81 18 16 Social cost (private cost and external cost) Supply (private cost) Demand (private value) 120 160 Quantity a. The private cost of producing the 160th unit of output is $16 b. The social cost of producing the 160th unit of output is $22. c. d. The external cost of producing the 160th unit of output is $6. All of the above are correct.
1. True or False d. In the presence of an unpriced negative externality such as roadway congestion, marginal private benefit will be less than marginal social cost. e. The optimal level of roadway congestion is zero. f. The optimal congestion toll on a road would be the difference between marginal benefit and marginal private cost at the optimal level of road usage.
2. The effect of negative externalities on the optimal quantity of consumption Consider the market for paper. Suppose that a paper factory dumps toxic waste into a nearby river, creating a negative externality for those living downstream from the factory. Producing an additional tonne of paper imposes a constant external cost of $105 per tonne. The following graph shows the demand (private value) curve and the supply (private cost) curve for paper. Use the purple points (diamond symbol) to plot the social cost curve when the external cost is $105 per tonne. (?) paper) PRICE (Dollars per tonne 700 630 560 490 420 350 280 210 140 70 0 0 ◇ 1 0 2 O 3 e O O The market equilibrium quantity is 3.5 O QUANTITY (Tonnes of paper) D Supply (Private Cost) Demand (Private Value) 7 Social Cost tonnes of paper, but the socially optimal quantity of paper production is 3 To create an incentive for the firm to produce the socially optimal quantity of paper, the government could impose a tax tonne of…
PRICE (Dollars per ton) 70 63 56 49 42 35 28 + 21 T 14 7 0 Demand +++ 0 40 80 120 160 200 240 280 320 360 400 QUANTITY (Millions of tons) Graph Input Tool Daily Demand for Pollution Rights Price (Dollars per ton) Quantity Demanded (Millions of tons) 7 360 Suppose the government has determined that the socially optimal quantity of particulate matter is 120 million tons per day. One way governments can charge firms for pollution rights is by imposing a per-unit tax on emissions. A tax (or price in this case) of $ of particulate matter emitted will achieve the desired level of pollution. ? per ton Now suppose the U.S. government does not know the demand curve for pollution and, therefore, cannot determine the optimal tax to achieve the desired level of pollution. Instead, it auctions off tradable pollution permits. Each permit entitles its owner to emit one ton of particulate matter per day. To achieve the socially optimal quantity of pollution, the government auctions off 120 million…
3. The effect of negative externalities on the optimal quantity of consumption Consider the market for electricity. Suppose that a power plant dumps byproducts into a nearby river, creating a negative externality for those living downstream from the plant. Producing additional electricity imposes a constant per-unit external cost of $300. The following graph shows the demand (private value) curve and the supply (private cost) curve for electricity. Use the purple points (diamond symbol) to plot the social cost curve when the external cost is $300 per unit. 1000 900 800 700 600 500 400 300 200 PRICE (Dollars per unit of electricity) 100 ப 0 0 1 2 ° 3 0 ° 4 ° QUANTITY (Units of electricity) 5 6 Supply (Private Cost) Demand (Private Value) Social Cost ? The market equilibrium quantity is units of electricity, but the socially optimal quantity of electricity production is units. To create an incentive for the firm to produce the socially optimal quantity of electricity, the government…
Figure 5-1 Price (dollars per vaccination) $60 50 40 400 600 Supply D, Refer to Figure 5-1. The market equilibrium quantity is O 200 O 400 O 600 O > 600 D₂ Quantity (thousands of vaccinations) Figure 5-1 represents the market for vaccinations. Vaccinations are considered a benefit to society, and the figure shows both the marginal private benefit and the marginal social benefit from vaccinations. thousand vaccinations.
2. Table: The following table shows the private value, private cost, and social value for a market with a positive externality. Quantity Private Value Private Cost Social Value 27 6 34 12 24 10 31 13 21 14 28 14 18 18 25 15 15 22 22 12 26 19 a. What is the market equilibrium quantity of output for this product? b. What is the socially-optimal level of output in this market? c. How large would a per unit subsidy need to be in this market to move the market from the equilibrium level of output to the socially-optimal level of output?
5. The effect of negative externalities on the optimal quantityof consumption Consider the market for paper. Suppose that a paper factory dumps toxic waste into a nearby river, creating a negative externality for those living downstream from the factory. Producing an additional ton of paper imposes a constant external cost of $210 per ton. The following graph shows the demand (private value) curve and the supply (private cost) curve for paper. Use the purple points (diamond symbol) to plot the social cost curve when the external cost is $210 per ton. PRICE (Dollars per ton of paper) 700 630 560 490 420 350 280 210 140 70 0 0 ¶¶ 1 O 2 O 3 4 5 QUANTITY (Tons of paper) The market equilibrium quantity is 0 ☐ Supply (Private Cost) 6 Demand (Private Value) 7 Social Cost ? tons of paper, but the socially optimal quantity of paper production is To create an incentive for the firm to produce the socially optimal quantity of paper, the government could impose a of paper. tons. per ton