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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Question
Chapter 16, Problem 1.8P
To determine
What will happen if the production imposes external costs on society, and these costs are not factored into production decisions.
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Students have asked these similar questions
Define the concept of a negative externality and explain the nature of the negative externality in the fishing markets i.e. describe how the self-interested actions of a fishing company might adversely affect third parties without their consent.
The question is in the screenshots attached. It's part of some practice questions in my online textbook.
The diagram to the right shows the perfectly competitive market for honey. The demand curve shows
the marginal benefit to society of consuming an extra unit of honey. The supply curve shows the
marginal costs of producing an extra unit of honey.
However, suppose that, as a by-product to producing honey, honeybees pollinate flowers, allowing more
flowers to grow and bloom. Suppose that for each unit of honey produced, one unit of flowers is
also created, providing an external benefit of $6.
Use the line drawing tool to draw and label the social marginal cost curve. (Make sure that the curve's
one end extends to the output level 18 and it crosses the demand curve.)
Carefully follow the instructions above, and only draw the required objects.
C
Price of Honey ($)
20.00-
18.00-
16.00-
14.00-
12.00-
10.00-
8.00-
6.00-
4.00-
2.00-
0.00-
0
-N
2
4
6 8 10 12 14
Quantity of Honey
S = MCp
16
D = MB
18 20
Chapter 16 Solutions
Principles of Economics (12th Edition)
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Similar questions
- Explain the effect of external cost on the quantity and price of market goods, using the graph. The negative and positive effectsarrow_forwardIf 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_forwardIdentify at least one positive and negative externality from running a hamburger shop. What is one example of how an externality could affect the price of your hamburger?arrow_forward
- 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. (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 instead of a lump-sum tax, the government…arrow_forwardTo produce honey, beekeepers place hives of bees in the fields of farmers. As bees gather nectar, they pollinate the crops in the fields, increasing the yields of these fields at no additional cost to the farmer. a) Is this an externality in consumption or production? b) Is this a negative or positive externality? c) If this externality is not internalized, would beekeepers produce more or less bees than socially optimal? Why? d) Suggest a market-based solution that would internalize the externality. In your answer, give reference to the social cost and social value curves. e) What might be a reasonable private solution to this externality and how might the solution be reached?arrow_forwardSoybeans 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…arrow_forward
- The Cemex plant in Davenport produced cement. The production of cement created dust which traveled through the air and landed on the nearby area. Testing at an elementary school and fire department near the plant showed toxic levels of Chromium 6 resulting from the dust. Using the concept of externalities and the graph below, explain what kind of externality this event created and the effects this had on economic efficiency. Be sure to indicate any differences between market price and quantity for cement and the efficient price and quantity.arrow_forwardDefine externality. Also explain negative and positive externality.arrow_forwardCan externalities affect the allocation of resources by a perfectly competitive industry?arrow_forward
- The following data refers to the number of logging operations working in a stretch of tropical rainforest per week. Excluding externalities, the private cost of a logging operation is $25 thousand per week. Logs sell for $1 a piece. Fill in the chart below. # of operations total harvest average harvest average revenue marginal harvest marginal revenue marginal profit 0 0 1 40 2 75 3 105 4 130 5 150 6 165 7 175 8 180 What is the number of logging operations in the forest that maximizes total profit? How much total resource rent is generated at this level of harvest? With open access to the forest, how many folks will wind up logging? With open access, will there be any resource rent earned by the loggers? Suppose the total externalities associated with deforestation could be valued at $10,000 per operation. What is the efficient number of operators? What is the open…arrow_forwardExternality is a problem that create market failure. How the externalities can be internalized to improve market efficiency?arrow_forwardExplain the difference between a positive externality and a negative externality. Can both types of externalities result in market failure? Why or why not?arrow_forward
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