Econ Micro (book Only)
6th Edition
ISBN: 9781337408066
Author: William A. McEachern
Publisher: Cengage Learning
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Chapter 17, Problem 3P
(Negative Externalities) Suppose you wish to reduce a negative externality by imposing a tax on the activity that creates that externality. When the amount of the externality produced per unit of output increases as output increases, the correct tax can be determined by using a
Negative Externalities: The Market for Electricity in the Midwest:
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19. This next question will require you to draw on what you have learned about supply and demand and taxes.
A study finds that leaf blowers make too much noise; therefore it is considered a
externality, so the government imposes a $10 tax on the sale of every unit to correct for the social cost of
the noise pollution. The tax completely internalizes the externality. Before the corrective tax, Leaves are Us
Manufacturing regularly sold blowers for $100 and market quantity is 300. Draw the supply and demand
curve for leaf blowers. Label the axes, the curves, market price, market quantity, and equilibrium.
Which curve represents private or internal costs?
represents external and private costs?
This is also known as
What is the private market price?
What is the private market quantity?
Which curve
costs.
After the tax is in place, the consumer price of leaf blowers
rises to $105. With this change in price, the number of leaf
blowers will
(decrease/increase). Why will this happen?
(R) please answer asap.
5) Suppose:
i) the price of gasoline is $2 per gallon
ii) current consumption is 400 (million) gallons per day
iii) the elasticity of demand is -0.8
iv) retail provision of gasoline may be approximated as a constant cost industry
v) there is an external cost of $0.5 per gallon of gas.
Calculate deadweight loss associated with the externality. Draw a figure to illustrate.
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- 2. A market has the inverse demand curve P ^ D * (q) = 300 - 1/2 * q and an inverse supply curve of P ^ D * (q) = 5/2 * q but a total negative externality of E(q) = - 60q (a) Find the competitive equilibrium in this market. (b) Find the marginal social value curve (the sum of the marginal externalities and inverse demand). (c) Find the surplus-maximizing quantity. (d) Calculate the deadweight loss of the competitive equilibrium. (e) Find the optimal per-unit tax for this market. 3. Repeat parts (c) through (f) assuming there is actually a positive externality E(q) = 60qarrow_forward3. The effect of negative externalities on the optimal quantity of consumption Consider 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 $140 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 $140 per ton. Sac Cont O Say Cet Demand P v QUANTITY (araf ste The market equilibrium quantity is tons of steel, but the socially optimal quantity of steel production is_ tons. To create an incentive for the firm to produce the socially optimal quantity of steel, the government could impose a ▼ of5 per ton of steel. d al anidarrow_forwardStatement:“Economists has stated that an economy has plunged to a market failure with an uptick in natural gas prices and production which has led to underperformance in other areas of the economy.” (Only the following market failures should be examined: public good, asymmetric information, positive or negative externality) 1. Identify the type of market failure being discussed in the statement above and discuss why market failure occurs in this scenario.arrow_forward
- Public Expenditure and Market Failure – Externalities1.The theory of (different types of) market failure can justify different kinds of publicexpenditure. Explain verbally and with a graph the concept of externalities, and give anexample for a real-world public expenditure that can be justified on the basis of the theoryof externalities.arrow_forward3. The effect of negative externalities on the optimal quantityof consumption Consider the market for electric cars. Suppose that a electric car manufacturing facility dumps sludge into a nearby river, creating a negative externality for those living downstream from the facility. Producing additional electric cars imposes a constant per-unit external cost of $210. The following graph shows the demand (private value) curve and the supply (private cost) curve for electric cars. Use the purple points (diamond symbol) to plot the social cost curve when the external cost is $210 per unit. PRICE (Dollars per unit of electric cars) 1400 1260 1120 980 840 700 560 420 280 140 0 0 O U 1 U O O 2 3 4 5 QUANTITY (Units of electric cars) The market equilibrium quantity is 6 Supply (Private Cost) Demand (Private Value) 7 Social Cost ? units of electric cars, but the socially optimal quantity of electric car production is To create an incentive for the firm to produce the socially optimal quantity of…arrow_forward1a) Most U.S. states impose gasoline taxes as a way to collect revenue. Assume that there are no market failures in this market. Show how a gasoline tax will create deadweight loss and reduce efficiency. b) Now suppose that gasoline consumption entails a negative externality through greenhouse gas emissions. Show how a properly designed gasoline tax could improve efficiency given this externality. c) What would you need to know to determine the efficient size of a state’s gasoline tax? d) True or False? If a state’s gasoline tax is higher than the amount needed to restore efficiency, it is clear evidence of a policy failure.arrow_forward
- 3. The effect of negative externalities on the optimal quantity of consumption Consider the market for paper. Suppose that a paper factory dumps toxic waste into a nearby river, creating a negative externality for those living downstream from the factory. Producing an additional ton of paper imposes a constant external cost of $70 per ton. The following graph shows the demand (private value) curve and the supply (private cost) curve for paper. Use the purple points (diamond symbol) to plot the social cost curve when the external cost is $70 per ton. Social Cost01234567200180160140120100806040200PRICE (Dollars per ton of paper)QUANTITY (Tons of paper)Demand(Private Value)Supply(Private Cost) The market equilibrium quantity is ---- tons of paper, but the socially optimal quantity of paper production is ---- tons. To create an incentive for the firm to produce the socially optimal quantity of paper, the government could impose a----- of per ton of paper.…arrow_forward3. The effect of negative externalities on the optimal quantity of consumption Consider the market for paper. Suppose that a paper factory dumps toxic waste into a nearby river, creating a negative externality for those living downstream from the factory. Producing an additional ton of paper imposes a constant external cost of $70 per ton. The following graph shows the demand (private value) curve and the supply (private cost) curve for paper. Use the purple points (diamond symbol) to plot the social cost curve when the external cost is $70 per ton. PRICE (Dollars per ton of paper) 200 180 160 140 120 100 80 60 40 20 0 0 1 4 5 QUANTITY (Tons of paper) 2 3 The market equilibrium quantity is Supply (Private Cost) O Demand 6 (Private Value) 7 Social Cost ? tons of paper, but the socially optimal quantity of paper production is To create an incentive for the firm to produce the socially optimal quantity of paper, the government could impose a of paper. tons. of $ per tonarrow_forward3. Efficiency in the presence of externalities Roses confer many external benefits on society: the beauty they add to a room or garden, the wonderful aroma they give off, and so on. Therefore, the market equilibrium quantity of roses is not equal to the socially optimal quantity. The following graph shows the demand for roses (their private value), the supply of roses (the private cost of producing them), and the social value of roses (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_forward
- sub= 24 helparrow_forward3. The effect of negative externalities on the optimal quantityof consumption Consider the market for electric cars. Suppose that a electric car manufacturing facility dumps sludge into a nearby river, creating a negative externality for those living downstream from the facility. Producing additional electric cars imposes a constant per-unit external cost of $160. The following graph shows the demand (private value) curve and the supply (private cost) curve for electric cars. Use the purple points (diamond symbol) to plot the social cost curve when the external cost is $160 per unit. ? PRICE (Dollars per unit of electric cars) 800 720 640 560 480 400 320 240 160 80 0 0 O ☐ 1 ☐ O ☐ O ☐ ☐ O 2 3 5 QUANTITY (Units of electric cars) ☐ Supply (Private Cost) O Demand (Private Value) 6 7 Social Cost 1.5 To create an incentive for the firm to produce the socially optimal quantity of electric cars, the government could impose a per unit of electric cars. 2 2.5 3 3.5 4 4.5 5 5.5 The market…arrow_forward3. The effect of negative externalities on the optimal quantity of consumption Consider the market for paper. Suppose that a paper factory dumps toxic waste into a nearby river, creating a negative externality for those living downstream from the factory. Producing an additional ton of paper imposes a constant external cost of $105 per ton. The following graph shows the demand (private value) curve and the supply (private cost) curve for paper. Use the purple points (diamond symbol) to plot the social cost curve when the external cost is $105 per ton. PRICE (Dollars per ton of paper) 700 630 560 490 420 350 280 210 140 70 0 0 1 O O 2 ☐ ■ 3 O 4 5 QUANTITY (Tons of paper) ☐ 6 Supply (Private Cost) Demand (Private Value) 7 Social Cost ?arrow_forward
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