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 3.1P
To determine
How traffic congestion becomes a tragedy of the commons and how it can be resolved.
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PRICE OF CARS
1. Efficiency in the presence of externalities
Cars impose many external costs on society: carbon dioxide emissions that contribute to air pollution, congestion on roadways, and so on. Therefore,
the market equilibrium quantity of cars is not equal to the socially efficient quantity. The following graph shows the demand for cars (their marginal
private benefit), the supply of cars (the marginal private cost of producing them), and the marginal social cost of cars, including both the marginal
private cost and external costs.
Use the black point (plus symbol) to indicate the market equilibrium quantity. Next, use the purple point (diamond symbol) to indicate the socially
efficient quantity.
Demand
(MPB, MSB)
QUANTITY OF CARS
As a result, the market output is
MSC
+
Market Output
Socially Efficient Output
Supply
(MPC)
the socially efficient output.
(?)
Which of the following policies could help the government achieve the socially efficient outcome? Check all that apply.
☐…
A policymaker argues that if the roads were privately owned, then the externality of traffic congestion would be fully internalized and solved by the market. Discuss this by first explaining the externality problem that leads to congestion, and then explain whether the private market would deliver the efficient level of roads.
Which of the following policies could help the government achieve the efficient outcome? Check all that apply.
Introduce emission taxes
Offer a subsidy to consumers equal to the vertical distance between the marginal private benefit curve and the marginal social benefit
curve
Implement tradable pollution permits
Offer a subsidy equal to the price at the efficient outcome
Offer a subsidy to producers equal to the vertical distance between the marginal private benefit curve and marginal social benefit curve
Chapter 16 Solutions
Principles of Economics (12th Edition)
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- Parks confer many external benefits on society: open space, trees that reduce pollution, and so on. Therefore, the market equilibrium quantity of parks is not equal to the socially optimal quantity. The following graph shows the demand for parks (their private value), the supply of parks (the private cost of producing them), and the social value of parks, including both the private value and external benefits. Use the black point (plus symbol) to indicate the market equilibrium quantity. Next, use the purple point (diamond symbol) to indicate the socially optimal quantity.arrow_forwardConfused and unsure how to solve properlyarrow_forwardHand written solution is not allowed please my dear.arrow_forward
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