Plz The following graph provides a stylised representation of the effects of the policy proposed by thegovernment to correct for the externality (in the graph, S2 is the supply curve after the policy isimplemented).Price ofhigh emissionsvehidess,PyP,SocialValueQ,QsQuantity of highemissions vehiclesGiven the stylised representation provided in the graph above, which of the following sentences ismost accurate about the burden of the policy?the burden of the policy falls only on buyers of high-emission carsthe burden of the policy falls only on sellers of high-emission carsthe burden of the policy is split between both the buyers and sellers of high-emission carsthe burden of the policy is zero because the externality is fully internalised

Answered: The following graph provides a stylised…

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Question

Plz

The following graph provides a stylised representation of the effects of the policy proposed by the
government to correct for the externality (in the graph, S2 is the supply curve after the policy is
implemented).
Price of
high emissions
vehides
s,
Py
P,
Social
Value
Q,
Qs
Quantity of high
emissions vehicles
Given the stylised representation provided in the graph above, which of the following sentences is
most accurate about the burden of the policy?
the burden of the policy falls only on buyers of high-emission cars
the burden of the policy falls only on sellers of high-emission cars
the burden of the policy is split between both the buyers and sellers of high-emission cars
the burden of the policy is zero because the externality is fully internalised

Expert Solution

Step 1

An externality is a cost or benefit incurred or received by a producer that is not paid for by that producer. Externalities can be positive or negative, and they can arise from the production or consumption of a product or service. The costs and benefits might be private (for an individual or an organization) or societal (for the entire community).

Government can take measures to correct an externality. Usually, a positive externality is corrected through subsidies, and a negative externality is corrected through taxes. These measures are taken so that the unpaid benefits or costs generated due to production or consumption are accounted for.