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 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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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
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.
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Principles of Economics (12th Edition)
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- Confused and unsure how to solve properlyarrow_forwardHand written solution is not allowed please my dear.arrow_forwardEfficiency in the presence of externalities Air horns impose many external costs on society: the risk of being deafened, the annoyance of being awakened in the middle of the night, and so on. Therefore, the market equilibrium quantity of air horns is not equal to the socially optimal quantity. The following graph shows the demand for air horns (their private value), the supply of air horns (the private cost of producing them), and the social cost of air horns, including both the 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 optimal quantity.arrow_forward
- This is an end-of-chapter problem that I'm struggling with! thanks!arrow_forwardExplain the concept of an externality. Explain and show graphically how externalities lead to market failure and an inefficient allocation of resources.arrow_forwardPublic wifi hotspots grant many external benefits on society: more equitable access to the internet, increased educational opportunities, and so on. Therefore, the market equilibrium quantity of public wifi hotspots does not equal the socially optimal quantity. The following graph plots the demand for public wifi hotspots (their private value), the supply of public wifi hotspots (the private cost of producing them), and the social value of public wifi hotspots, 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. PRICE OF PUBLIC WIFI HOTSPOTS Supply (Private Cost) Social Value Demand (Private Value) QUANTITY OF PUBLIC WIFI HOTSPOTS Market Equilibrium Socially Optimal Level ?arrow_forward
- Public wifi hotspots grant many external benefits on society: more equitable access to the internet, increased educational opportunities, and so on. Therefore, the market equilibrium quantity of public wifi hotspots does not equal the socially optimal quantity. The following graph plots the demand for public wifi hotspots (their private value), the supply of public wifi hotspots (the private cost of producing them), and the social value of public wifi hotspots, 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_forwardThe graph illustrates the market for pesticide with no government intervention. When the factories produce pesticide, they also create waste, which they dump into a lake on the outskirts of town. The marginal external cost of the dumped waste is equal to the marginal private cost of producing pesticide (that is, the marginal social cost of producing the pesticide is double the marginal private cost.) What quantity of pesticide is produced if no one owns the lake? If no one owns the lake, the quantity of pesticide produced is tonnes a week. The efficient quantity of pesticide is tonnes a week. 480- 400- 320- 240- 160- 80- Price (dollars per tonne) 40 80 120 160 Quantity (tonnes of pesticide per week) S D 200 Narrow_forwardTime remaining: 00 :07 :32 Economics The figure below shows the production of microchips for computers. Assume that production gives rise to positive external effects. On the vertical axis, we have the price in dollars and the marginal social benefits of production. On the horizontal axis we have the quantity of data chips. based on the figure, answer the following questions with detailed answers a) If the marginal external effect of producing computer chips is 10 dollars, then what will be the socially optimal production and what will be the socially optimal price? b) Propose an appropriate policy instrument for a state that wants to achieve the socially optimal quantity. Also enter a value for the instrument (size).arrow_forward
- What are (environmental) externalities? Explain one example from production/consumption condition that would result in negative externalitiesarrow_forwardConsider the market for steel. Suppose that a steel manufacturing plant dumps toxic waste into a nearby river, creating a negative externality for those living downstream from the plant. Producing an additional ton of steel imposes a constant external cost of $165 per ton. The following graph shows the demand (private value) curve and the supply (private cost) curve for steel. Use the purple points (diamond symbol) to plot the social cost curve when the external cost is $165 per ton. 1100 990 Social Cost 880 770 Supply (Private Cost) 660 550 440 330 220 Demand 110 (Private Value) 1 2 4 7 QUANTITY (Tons of steel) PRICE (Dollars per ton of steel)arrow_forwardPollution from the bright city lights makes it nearly impossible to stargaze within a city setting. The supply (private cost) and demand for electricity used in city lighting are shown in the graph. Suppose the external cost for an additional kilowatt hour of electricity is 5 cents. Drag the endpoints of the green line to draw in the social cost (private cost and external cost) curve for electricity. Place point O at the point corresponding with the socially optimal quantity and price for electricity. Price of electricity (cents per kWh)Quantity of electricity (kWh)01020304050SupplyDemandOSocial cost of light pollution Assume the government places an optimal Pigouvian tax on electricity used at night to reduce light pollution so that people can enjoy the stars. As a result of the Pigouvian tax, consumers pay a higher price for electricity at night and producers increase output. consumers pay a lower price for electricity and producers also lower output. consumers pay a…arrow_forward
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