Use the general equilibrium model to derive the optimal ( efficiency ) condition for the provision of a public good. Also , discuss the constraints related to this model.
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Use the general equilibrium model to derive the optimal ( efficiency ) condition for the provision of a public good.
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- The market for perfume is characterized by: MPB=200-Q and MPC= 3Q with a marginal social benefit of -$12 caused by the others smelling the perfume. The externality is ______ and on the _____ side of the market. The inefficient quantity is ______ and the price is _____. The allocatively efficient quantity in the market is ______. If the government were to correct the externality, it would _______ the market by $______ per unit of perfume. Word Bank: negative, demand, 50, 150, 47, tax, 12, positive, supply, subsidyThe equations below represent the demand and supply curves for annual gym memberships in a city. qD= 500 − 2p, qS=0.5p − 50 Because physical activity leads to better health, the city estimates that each annual gym membership saves $30 of public spending on healthcare per year (a positive externality). a. In a graph, show the market and the socially optimal equilibria for annual gym memberships in this city. Does the market equilibrium result in under- or over-consumption of memberships? What is the deadweight loss associated with the market failure in this situation? b. Would you recommend this city to implement a subsidy (a negative Pigouvian tax) to correct this market failure? If so, how much would be the subsidy per unit? What would be the effects of your proposed policy on the quantity, price, and aggregate welfare?Parks confer many external benefits on society: open space, trees that reduce pollution, and so on. Therefore, the market equilibrium quantity of parks is not equal to the socially optimal quantity. The following graph shows the demand for parks (their private value), the supply of parks (the private cost of producing them), and the social value of parks, including both the private value and external benefits. Use the black point (plus symbol) to indicate the market equilibrium quantity. Next, use the purple point (diamond symbol) to indicate the socially optimal quantity.
- Suppose that speeding imposes externalities on other people resulting in a social cost of $50. A town is considering hiring an extra police officer to give out speeding tickets. If we want to maximize social welfare (absent enforcement costs), which of the following statements are true? (Assume risk neutral drivers.) What happens to the socially optimal cost of the speeding ticket if the town decides to hire the police officer? a) It goes down b) It goes up c) The amount that it goes down depends on salary of the police officer d) The amount if goes up depends on the salary of the police officer e) None of the aboveSave The market price of insecticide is initially $10 per unit. To address a negative externality in this market, the government decides to charge producers of insecticide for the privilege of polluting during the production K process. A fee that fully takes into account the social costs of pollution is determined, and once it is put into effect, the market supply curve for insecticide shifts upward by $8 per unit. The market price of insecticide also increases, to $12 per unit. What fee is the government charging insecticide manufacturers? $ (Enter a numeric response using an integer.)Which of the following is an example of a negative externality (additional social cost)? Multiple Choice ___ an increase in the value of land you own when a nearby development is completed ___ the costs paid by a company to build an automated factory ___ falling property values in a neighborhood where a disreputable nightclub is operating ___ the higher price you pay when you buy a heavily advertised product.
- (12) Consider a market with social marginal benefit (quantity demanded) given by SMB = 600 – Q and private marginal cost (quantity supplied) given by PMC = Q. Social marginal cost is given by SMC = 200 + Q. Assume SMB = PMB. (a) Graph these SMB, SMC, and PMC curves. (b) Find the market equilibrium price and quantity. (c) Find the socially optimal equilibrium price and quantity.We recognize four types of goods, namely; private goods, public goods, club goods, and shared resources. Roads are an example of a public good. When the congestion gets worse, will the roads remain public goods or turn into club goods or common goods? ExplainIn the market for a certain pesticide, the following equations represent the private demand and supply: Private Demand: QD = 160 - P Private Supply: QS = 4P The use of this pesticide has a negative externality that affects nearby ecosystems, which is not reflected in the market price. The external cost is estimated to be $5 per unit of pesticide. By how much is the pesticide overconsumed under perfect competition? A) 1 units B) 3 units C) 4 units D) 5 units E) none of the above
- Cause and Individual Example of Market Failure with a Negative Externality In Section 1, externalities are introduced as well as market failures, where the socially optimal output is not the same as what the market produces by itself. For this discussion, your task is to: Describe a real-world negative externality. In your externality identify who are the participants in the market and who receives the spillover How are the incentives for the firm misaligned from the rest of society to make the externality?An externality arises when a firm or person engages in an activity that affects the wellbeing of a third party, yet neither pays nor receives any compensation for that effect. If the impact on the third party is beneficial, it is called a externality. The following graph shows the demand and supply curves for a good with this type of externality. The dashed drop lines on the graph reflect the market equilibrium price and quantity for this good. Adjust one or both of the curves to reflect the presence of the externality. If the social cost of producing the good is not equal to the private cost, then you should drag the supply curve to reflect the social costs of producing the good; similarly, if the social value of producing the good is not equal to the private value, then you should drag the demand curve to reflect the social value of consuming the good. (?) PRICE (Dollars per unit) QUANTITY (Units) Supply Demand ¦ þ Demand SupplyEfficiency in the presence of externalities Air horns impose many external costs on society: the risk of being deafened, the annoyance of being awakened in the middle of the night, and so on. Therefore, the market equilibrium quantity of air horns is not equal to the socially optimal quantity. The following graph shows the demand for air horns (their private value), the supply of air horns (the private cost of producing them), and the social cost of air horns, including both the private cost and external costs. Use the black point (plus symbol) to indicate the market equilibrium quantity. Next, use the purple point (diamond symbol) to indicate the socially optimal quantity.
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