The following graph provides a stylised representation of the effects of the policy proposed by the Advertisement Suveen to correct for the externality (in the graph, S2 is the supply curve after the policy is implemented). Price of high emissions vehides Social Value Q, Quantity of high emissions vehicles If the policy is implemented, what is the deadweight loss generated by the externality? P.
The following graph provides a stylised representation of the effects of the policy proposed by the Advertisement Suveen to correct for the externality (in the graph, S2 is the supply curve after the policy is implemented). Price of high emissions vehides Social Value Q, Quantity of high emissions vehicles If the policy is implemented, what is the deadweight loss generated by the externality? P.
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Transcribed Image Text:The following graph provides a stylised representation of the effects of the policy proposed by the
Advertisement
gureiTiItit to correct for the externality (in the graph, S2 is the supply curve after the policy is
implemented).
Price of
high emissions
vehides
Py
A
Social
Value
Q,
Qu
Quantity of high
emissions vehicles
If the policy is implemented, what is the deadweight loss generated by the externality?
A+B+C+D
C+D
Zero
Expert Solution
Given information:
The market equilibrium occurs at the intersection point of initial supply (S1) and demand curve (D).
So, the market equilibrium quantity is Q3 and the price is P3.
--------------
The social optimal level occurs at the intersection point of the initial supply (S1) and social curve.
So, the socially optimal level output is Q2 .
-------------
There is a negative externality in the market. Because of it, there is overproduction in the market at higher prices and creates a deadweight loss equal to C+D
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