The following graph shows the market for magic wands in a fictional country of Buranda. Suppose that citizens of Buranda realized that the equipment used in production of magic wands creates noise above 70 dB, which over a prolonged period of time is harmful for people's hearing. Suppose that the harm is estimated at $3 per magic wand. Based on the graph, if 5 magic wands are produced, they are valued at $ whereas the social cost is equal to $ This means the market outcome is Suppose the government of Buranda imposes a tax equal to $3 per magic wand in an attempt to make producers of magic wands to internalize the cost to society.

Essentials of Economics (MindTap Course List)
8th Edition
ISBN:9781337091992
Author:N. Gregory Mankiw
Publisher:N. Gregory Mankiw
Chapter10: Externalities
Section10.1: Externalities And Market Inefficiency
Problem 1QQ
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The following graph shows the market for magic wands in a fictional country of Buranda.
Suppose that citizens of Buranda realized that the equipment used in production of magic wands creates noise above 70 dB, which over a prolonged
period of time is harmful for people's hearing. Suppose that the harm is estimated at $3 per magic wand.
Based on the graph, if 5 magic wands are produced, they are valued at $
whereas the social cost is equal to $
This means the
market outcome is
Suppose the government of Buranda imposes a tax equal to $3 per magic wand in an attempt to make producers of magic wands to internalize the
cost to society.
Transcribed Image Text:The following graph shows the market for magic wands in a fictional country of Buranda. Suppose that citizens of Buranda realized that the equipment used in production of magic wands creates noise above 70 dB, which over a prolonged period of time is harmful for people's hearing. Suppose that the harm is estimated at $3 per magic wand. Based on the graph, if 5 magic wands are produced, they are valued at $ whereas the social cost is equal to $ This means the market outcome is Suppose the government of Buranda imposes a tax equal to $3 per magic wand in an attempt to make producers of magic wands to internalize the cost to society.
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