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 3PA

Greater consumption of alcohol leads to more motor vehicle accidents and, thus, imposes costs on people who do not drink and drive.

  a. Illustrate the market for alcohol, labeling the demand curve, the social-value curve, the supply curve, the social-cost curve, the market equilibrium level of output, and the efficient level of output.

  b. On your graph, shade the area corresponding to the deadweight loss of the market equilibrium. (Hint: The deadweight loss occurs because some units of alcohol are consumed for which the social cost exceeds the social value.) Explain.

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34. The graph below showing the costs and benefits of producing and consuming gasoline. The dark line labeled Sp shows the Supply curve based on producers' costs, and the dark line labeled Dc shows the Demand curve based on the consumers' benefits. (Note, this is the same graph as in #33). Which of the following shows the excess quantity produced by a free market as compared to the social optimum quantity? P p2 ро pl 0 q1 q0 q2 A Is the excess quantity: (A) the distance from q1 to q0; (B) the distance from q1 to q2; (C) the distance from q0 to q2; (D) the distance from p1 to p2; Please put your answer (A), (B), (C), or (D) in the text box. E Sp B Dc с
3. Use the graph to answer the question that follows.Assume that the market shown is perfectly competitive with no externalities. If the production output is 15,000 units, then A-the market is allocatively efficient B-there is a shortage of the good C-deadweight loss is being minimized D-deadweight loss is being maximized E- consumer and producer surplus are maximized   5.Use the graph to answer the question that follows.  What is the market equilibrium quantity and price at which there is no government regulation? A-15, $17.50 B-20, $15 C-30, $25 D-35, $22.50 E- Indeterminate
Use the graph attached below as a starting point (either download it or print it out). Add curves, labels, etc. to this graph in order to show the following: 1. Show that this good has a $4/unit negative externality (external cost), such as pollution. 2. Shade the area that represents the Deadweight Loss (lost gains from trade) caused by the external cost. 3. Show a tax or subsidy wedge (whichever you think is appropriate) that will solve the problem of the external cost. 4. Show the socially optimal level of production that the Pigouvian tax or subsidy above will help the market to achieve. You may use software or pencil and paper to complete this graph. Upload it here when you are done.
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