Why is the following statement false?: If a good is non-rival and non-excludable, it will never be produced by the private sector (i.e., public-sector intervention is required in order for a non-zero quantity of such a good to be produced).
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Why is the following statement false?:
- If a good is non-rival and non-excludable, it will never be produced by the private sector (i.e., public-sector intervention is required in order for a non-zero quantity of such a good to be produced).
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- In the market for widgets, consumers have a market demand (marginal benefit) curve of P = MB = 250 - Q. In this problem, there is no distinction between private and social marginal benefit. The widget suppliers have a market supply (private marginal cost) curve of P = MC Private = 100+ Q. The production of widgets generates a negative externality in the form of pollution, with marginal external cost of X = 50. Due to this externality, there will be a difference between private and social marginal cost. Questions Analyze the following scenarios describing possible outcomes in the market for widgets. Efficient Outcome Find the equation for social marginal cost (MCsocial), using the information above. Determine the efficient quantity (Q*). AGEC 3503 1 ● HW7 - Negative Externalities Calculate the joint surplus (JS*), total external cost (TX*), and the total surplus (TS*) based on the efficient quantity. Equilibrium Outcome Find the market equilibrium, defined by the market quantity (Q) and…The graph illustrates the market for pesticide with no government intervention. When the factories produce pesticide, they also create waste, which they dump into a lake on the outskirts of town. The marginal external cost of the dumped waste is equal to the marginal private cost of producing pesticide (that is, the marginal social cost of producing the pesticide is double the marginal private cost.) What quantity of pesticide is produced if no one owns the lake? If no one owns the lake, the quantity of pesticide produced is tonnes a week. The efficient quantity of pesticide is tonnes a week. 480- 400- 320- 240- 160- 80- Price (dollars per tonne) 40 80 120 160 Quantity (tonnes of pesticide per week) S D 200 NLecture: Externality - Pigou8. All-Leather is a tanning company located on Lake Michigan in Chicago. Its total cost functionis C(QA) = 125 + 8QA + 5QA2, where QA is leather production per week in thousands of pounds.a) If leather sells for $408 per thousand pounds, how much leather will All-Leather produce?How much profit does All-leather earn?Enjoy is a beverage company located on Lake Michigan near All-Leather in Chicago. Enjoy’sproduction of beverages is negatively affected by water pollution from All-Leather’s productionof leather. Enjoy’s total cost function to produce beverages isC(QE) = 10QE +3QE2 + 3QA2where QE is Enjoy’s weekly production of beverages, in thousandsof gallons and, as above, QA is All-Leather’s weekly production of leather.b) Is this an example of a pecuniary externality or a real externality? Explain.c) What is the extra cost to Enjoy from an additional thousand tons of leather production by AllLeather (i.e., the external marginal cost of an extra unit of QA…
- In 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 aboveWhat is a negative externality? Group of answer choices -When there is a cost involved in the production of a good -When the production or consumption of a good results in a negative spillover to society that is not paid for by the business or the consumer. -When there is a benefit involved in the production of a good -When there is an external negativity, such as an outsider criticizing a product.Smokers impose negative externalities on nonsmokers. Suppose the airspace in a restaurant is a resource owned by the restaurant owner. How would the owner respond to the negative externality caused by smokers? Suppose smokers own the airspace. How would that change matters? If the government gives ownership of the air to nonsmokers, would that change matters? Explain your answer. What does a ban on smoking in the restaurant do?
- The graph below depicts a market with a positive externality. Market Price P₁ Q₁ Q₂ O Q2 O Q1 OP1 OP2 Quantity D₁ S D₂ Which label shows the quantity that reflects both the external and private benefits of consumption (social demand)?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.Consider the market for bolts. Suppose that a hardware factory dumps toxic waste into a nearby river, creating a negative externality for those living downstream from the factory. Producing an additional ton of bolts imposes a constant external cost of $90 per ton. The following graph shows the demand (private value) curve and the supply (private cost) curve for bolts. Use the purple points (diamond symbol) to plot the social cost curve when the external cost is $90 per ton. PRICE (Dollars per ton of bolts 600 540 480 420 360 300 240 180 120 60 0 0 C ☐ 1 O ☐ 2 O 0 3 4 QUANTITY (Tons of bolts) 0 The market equilibrium quantity is O ☐ 5 Supply (Private Cost) Demand (Private Value) 6 7 Social Cost (?) ▼ tons of bolts, but the socially optimal quantity of bolt production is To create an incentive for the firm to produce the socially optimal quantity of bolts, the government could impose a $ per ton of bolts. tons. of
- Consider a market with the following supply and demand. (It may help to draw a graph for these questions.) P 5 6 7 8 9 10 11 12 13 14 QS 200 300 400 500 600 700 800 900 1000 1100 QD 800 750 700 650 600 550 500 450 400 350 If there is an external cost of $3, what is the efficient quantity? If there is an external benefit of $3, what is the efficient quantity? For the remaining questions assume that there is a $3 external COST. If the government wants to get the efficient quantity with a per/unit tax, how much should the tax be? Now imagine that they use tradable allowances. If they cap the quantity at 400 what would the value of these allowance be in the market? (Assume the market is perfectly competitive and that "one allowance" lets you…What is an externality in economics? Explain how a neighbor’s barking dog could be both a positive and a negative externality. Can pollution ever make us better off? How do we know? Should we aim to eliminate all pollution? If not, what should our goal be? Defend your answer. When thinking about types of goods, what does rivalry mean? What does excludability mean? What are the four categories of goods we can identify using those attributes, and what is an example of a good in each category?The marginal private cost of fertilizer production is MPC = 40 + Q, where Q is the amount of fertilizer produced. The marginal benefit (both private and social) of fertilizer is MB = 340 – 4Q. In addition to the private costs faced by producers of fertilizer, people who walk or drive past the area where the fertilizer is produced also face costs because of the horrible smell of the fertilizer; the marginal external cost generated by the fertilizer is MEC = 20 + 3Q. How much fertilizer will be produced by the free market? What is the efficient quantity of fertilizer? Calculate the amount of deadweight loss in this market, and explain what this number means. Suppose that the government realizes that the current amount of fertilizer produced by the free market is inefficient and decides to correct this inefficiency by taxing the production of fertilizer. How large should the tax per unit of fertilizer be to induce the market to produce the efficient amount, and why would such a tax…