Economics For Today
10th Edition
ISBN: 9781337670654
Author: Tucker
Publisher: Cengage
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Chapter 14, Problem 5SQ
To determine
The meaning of the private cost.
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Lecture: 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…
Soybeans are produced and sold in a perfectly competitive market. The fertilizers used in soybean production generate a negative externality by seeping liquid contaminants into local rivers. The local rivers are, as a result, suffering.
(a) Draw a correctly labeled graph of the soybean market, and show each of the following.
(i) The marginal private cost, labeled MPC
(ii) The marginal social cost, labeled MSC
(iii) The marginal social benefit, labeled MSB
(iv) The market equilibrium quantity, labeled Qc
(v) The socially optimal quantity, labeled Qs
(vi) The area of the deadweight loss, shaded completely
(b) Assume the government sets a binding price floor such that the quantity demanded in the market is between Qs and Qc.
(i) What will happen to the quantity produced?
(ii) Will the price floor reduce the deadweight loss? Explain.
(c) Assume instead of a price floor, the government decides to impose a lump-sum tax. What will happen to the socially optimal quantity? Explain.
(d) Assume…
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, subsidy
Chapter 14 Solutions
Economics For Today
Ch. 14.2 - Prob. 1.1GECh. 14.2 - Prob. 1.2GECh. 14.2 - Prob. 1.3GECh. 14.2 - Prob. 2.1GECh. 14.2 - Prob. 2.2GECh. 14.2 - Prob. 2.3GECh. 14.2 - Prob. 2.4GECh. 14 - Prob. 1SQPCh. 14 - Prob. 2SQPCh. 14 - Prob. 3SQP
Ch. 14 - Prob. 4SQPCh. 14 - Prob. 5SQPCh. 14 - Prob. 6SQPCh. 14 - Prob. 7SQPCh. 14 - Prob. 8SQPCh. 14 - Prob. 9SQPCh. 14 - Prob. 10SQPCh. 14 - Prob. 11SQPCh. 14 - Prob. 12SQPCh. 14 - Prob. 13SQPCh. 14 - Prob. 14SQPCh. 14 - Prob. 15SQPCh. 14 - Prob. 16SQPCh. 14 - Prob. 1SQCh. 14 - Prob. 2SQCh. 14 - From an economic viewpoint, the optimal amount of...Ch. 14 - Prob. 4SQCh. 14 - Prob. 5SQCh. 14 - Prob. 6SQCh. 14 - Prob. 7SQCh. 14 - Prob. 8SQCh. 14 - Prob. 9SQCh. 14 - Prob. 10SQCh. 14 - Prob. 11SQCh. 14 - Prob. 12SQCh. 14 - Prob. 13SQCh. 14 - Prob. 14SQCh. 14 - Prob. 15SQCh. 14 - Prob. 16SQCh. 14 - Prob. 17SQCh. 14 - Prob. 18SQCh. 14 - Prob. 19SQCh. 14 - Prob. 20SQ
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