Economics of Public Issues (20th Edition) (The Pearson Series in Economics)
20th Edition
ISBN: 9780134532035
Author: Miller
Publisher: PEARSON
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Question
Chapter 20, Problem 1DQ
To determine
The benefit s of externalities to the nation in the long-run.
Expert Solution & Answer
Explanation of Solution
Subsidization refers to giving subsidy to specific industrial units. The tax revenue collected from various sources finance these subsidies. The resources can be put to various uses and at the same time they are scarce. Thus, using money to benefit single industry would not result in sustainable development.
If industry products benefit all the people of the society, then these types of products would have positive externalities. Solar panel for generating electricity is an example to this. It makes other sources of electricity generation free so that it can be used in various other forms.
Economics Concept Introduction
Concept introduction:
Externalities:
External factors that cause either a benefit or loss to the produces, but do not reflect in the market price of the good or service and not even in the accounts of the producer, are known as externalities. It may be a loss for one party and gain for the other.
The positive externality can be termed as external benefit, whereas the negative externality can be termed as external cost.
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Students have asked these similar questions
evaluate the impact of government interventions, such as antitrust regulations, price controls, or subsidies, on various market structures. Select a specific industry and examine how these interventions have influenced competition, consumer welfare, and economic efficiency. Provide the pros and cons of government intervention.
Consider an economy that exhibits both population growth (L grows at rate n) and
technological progress (A grows at rate a) described by the production function,
Y = F(K, AL) = Ka (AL)¹-α
Here K is capital and Y is output.
(a) Show that this production function exhibits constant returns to scale. [2 marks]
(b) What is the per-effective-worker production function, y = f(k), (where y = Y/AL
k K/AL)? (Show your working.)
[2 marks]
(c) Find expressions for the steady-state capital-output ratio, capital stock per
effective worker, and output per effective worker, as a function of the saving rate
(s), the depreciation rate (8), the population growth rate (n), the rate of
technological progress (a), and the coefficient a. (You may assume the condition
that capital per effective worker evolves according to Ak = sf (k) - (a+n+8)k.)
[5 marks]
(d) Show that at the Golden Rule steady state the saving rate for this economy is
equal to the parameter a.
[6 marks]
A firm faces the following production function,
Y = AKα L¹-a
(1)
Here Y is output, K is capital, L is fixed labour, and A is a measure of technology.
The firm uses an optimal amount of capital determined by the condition,
MPK = r +8
(2)
Where MPK is the marginal productivity of capital, r is the real interest rate, and ♪ is
the depreciation rate.
(a) Using equations (1) and (2) find an expression for K*, the optimal amount of
capital the firm should use.
[3 marks]
(b) Referring to your result from part (a), comment on what happens to K* when
each of the following variables change (holding other variables constant),
(i)
The measure of technology (A) falls
(ii)
The depreciation rate (8) increases
(iii)
The real interest rate (r) increases
[2 marks]
[2 marks]
[2 marks]
[Hint: For each of parts (i)-(iii) you are being asked to comment on what happens to
K* if just the variable mentioned in the question part changes. Your answer should
state whether K* increases, decreases, or stays the…
Chapter 20 Solutions
Economics of Public Issues (20th Edition) (The Pearson Series in Economics)
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