Essentials of Economics (MindTap Course List)
Essentials of Economics (MindTap Course List)
8th Edition
ISBN: 9781337091992
Author: N. Gregory Mankiw
Publisher: Cengage Learning
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Chapter 10, Problem 2PA

Sub part (a):

To determine

The positive externality of fire extinguishers.

Sub part (b):

To determine

The positive externality of fire extinguishers.

Sub part (c):

To determine

The positive externality of fire extinguishers.

Sub part (d):

To determine

The positive externality of fire extinguishers.

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Consider the market for fire extinguishers.a. Why might fire extinguishers exhibit positive externalities?b. Draw a graph of the market for fire extinguishers, labeling the demand curve, the social-value curve, the supply curve, and the social-cost curve.c. Indicate the market equilibrium level of output and the efficient level of output. Give an intuitive explanation for why these quantities differ.d. If the external benefit is $10 per extinguisher, describe a government policy that would yield the efficient outcome.
#2. When pollution (a negative externality) is created by firms, which of the following is NOT a valid way for the government to restore the social optimum? a. require firms to install pollution-abatement equipment b. require firms to change production techniques to reduce emissions c. levy a tax on the production of the good d. require firms to pay for the environmental damage they create e. offer a subsidy to firms to reduce their production costs
a. When a firm imposes an external social cost (negative externality), the government should impose a tax on production equal to the externality cost to ensure that the market will achieve the socially optimal outcome. Select one: True False   b. The socially optimal level of emissions of most pollutants is zero. Select one: True False   c. Externalities are only inefficient when they impose a cost. They are not inefficient when they bestow a benefit. Select one: True False
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