## Market Analysis: Exploding Phones### Diagram DescriptionThe diagram illustrates the market dynamics for phones known to explode and cause injuries. The graph features the following lines:- **S (Supply Curve)**: An upward sloping line representing how the quantity of phones supplied increases as the price rises.- **D (Demand Curve)**: A downward sloping line showing how the quantity of phones demanded decreases as the price goes up.- **MSB (Marginal Social Benefit)**: A line that lies below the demand curve, indicating the social benefit derived from each additional unit of phone. ### Graph Explanation- The vertical axis (P) represents the price of phones.- The horizontal axis (Q) represents the quantity of phones.### Analysis Questionsa.) **Efficient Quantity**: This is the quantity where the MSB and S curves intersect, indicating the socially optimal level of production considering the external costs of injuries.b.) **Deadweight Loss (DWL) at the Market Quantity**: This value represents the loss in economic efficiency when the equilibrium quantity of phones (where S and D intersect) is higher than the efficient quantity (where S and MSB intersect).To find the solutions, analyze the intersections of the curves and calculate the areas between the curves at different quantities.

Answered: The diagram below shows the market for…

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

See similar textbooks

Related questions

Question

## Market Analysis: Exploding Phones

### Diagram Description
The diagram illustrates the market dynamics for phones known to explode and cause injuries. The graph features the following lines:

- **S (Supply Curve)**: An upward sloping line representing how the quantity of phones supplied increases as the price rises.
- **D (Demand Curve)**: A downward sloping line showing how the quantity of phones demanded decreases as the price goes up.
- **MSB (Marginal Social Benefit)**: A line that lies below the demand curve, indicating the social benefit derived from each additional unit of phone.

### Graph Explanation
- The vertical axis (P) represents the price of phones.
- The horizontal axis (Q) represents the quantity of phones.

### Analysis Questions
a.) **Efficient Quantity**: This is the quantity where the MSB and S curves intersect, indicating the socially optimal level of production considering the external costs of injuries.

b.) **Deadweight Loss (DWL) at the Market Quantity**: This value represents the loss in economic efficiency when the equilibrium quantity of phones (where S and D intersect) is higher than the efficient quantity (where S and MSB intersect).

To find the solutions, analyze the intersections of the curves and calculate the areas between the curves at different quantities.

Expert Solution

Step 1

Answer:

(a). The efficient quantity for this market is 8. In the case of negative consumption externality, there will be an external marginal cost that will lower the social marginal benefit. The optimal output will occur where the SMB and S intersect each other. At that point, the quantity is 8.

Efficient quantity = 8

According to the above figure the equilibrium occurs at point E. The corresponding equilibrium quantity is 8.

Step by step

Solved in 2 steps with 2 images

SEE SOLUTION Check out a sample Q&A here

Knowledge Booster

Learn more about

Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, economics and related others by exploring similar questions and additional content below.

Similar questions