Principles of Economics (12th Edition)
12th Edition
ISBN: 9780134078779
Author: Karl E. Case, Ray C. Fair, Sharon E. Oster
Publisher: PEARSON
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Chapter 12, Problem 3.5P
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Externalities and market failure.
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- If there are no externalities or market power and all markets are in equilibrium, what conclusions can we draw from this in economic theory?arrow_forwardGive an example of an externality. Explain how a tax or subsidy might be used to “correct” for the inefficiency of a market equilibrium in the presence of an externality.arrow_forwardExplain the concept of an externality. Explain and show graphically how externalities lead to market failure and an inefficient allocation of resources.arrow_forward
- If the government subsidizes vaccination against influenza to internalize the externality, should it impose the subsidy on consumers or producers of flu vaccines? How large should the subsidy be? How much less per flu vaccine would patients (i.e., consumers) pay? How much more would manufacturers (i.e., producers) of flu vaccines receive?arrow_forwardFrom CNN what news article represents an issue ragards to Externalities or that can be realted to externalities? Cite at least one source (News Article, Video, etc.) for any data. Explain: What is the Economic issue? (Describe the issue) What is the connection to Externalities? (positive, negative, policy) (Use Math, Graph or data to explain or support your idea) Explain how this affects the Economy (individual, industry, national or global)arrow_forwardAn 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 Supplyarrow_forward
- not use ai please don'tarrow_forwardIn the past, some counties and countries have imposed taxes on sugar, saturated fats, and food made with those ingredients as a way to reduce consumption of those foods. Assume the government imposes a unit tax on all chocolate. Answer the following questions Is there an externality from consuming chocolate? Explain why or why not. Use a correctly labeled graph to show what happens in the market for chocolate as a result of the unit tax. On your graph, show the market equilibrium before and after the tax (i.e. show the equilibrium prices and quantities.) Show graphically what happens to consumer surplus and producer surplus after the tax (you may need a separate graph to show this.) Will consumers be able to shift this tax to sellers? If yes explain why/how. If no explain why not. Based on your answer to c, who will bear the incidence of this tax? Show this on a graph. How will consumers respond to the tax on chocolate? How will candy companies respond strategically to the tax on…arrow_forwardDraw a supply curve and describe the external factors that determine supply.arrow_forward
- please answer the following question with grapharrow_forwardWhat is an externality? Provide two examples each of positive and negative externalities.arrow_forwardThe figure below shows a market in which there is an externality. The curve S2 is parallel to S1. Areas in the figures are numbered. What type of externality is shown in the figure and why is it a problem in economics? Identify the market equilibrium and the social equilibrium in the figure. If the market were to move from the market equilibrium to the social equilibrium, indicate the area(s) that represent the change in consumer surplus, the change in producer surplus, the change for third parties, and the net effect on total surplus. Does total surplus rise or fall? What would be the amount of a per-unit tax needed to fix the externality?arrow_forward
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