Economics (MindTap Course List)
13th Edition
ISBN: 9781337617383
Author: Roger A. Arnold
Publisher: Cengage Learning
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Chapter 30, Problem 3QP
To determine
Identify the shaded area.
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Acceptable social norms and social recognition act like corrective taxes and subsidies. Social norms act as a corrective tax
by discouraging people from partaking in an action that will cause a negative externality by fear or shame of being judged
harshly by others in society.
Likewise social recognition can act as a corrective subsidy and cause people to partake in more activities that will create
positive externalities.
Classify the following examples of social norms by whether the behavior is undertaken to avoid society's judgement, i.e.,
working as a corrective tax, or to receive social recognition, i.e., working as a corrective subsidy.
Corrective Tax
Corrective Subsidy
While the Lindahl model (equilibrium) can be analogous to the market for private goods, they have interesting differences. How do we interpret Q1 in the diagram? What about S?
The cost (supply) of each "unit" of NPR (National Public Radio) is P=9. Derek's valuation for each unit of NPR (demand) is
given by Pp=20-2Q, and Kim's valuation is given by Pg=10-Q.
The social valuation of NPR is Ps=
Q.
The socially optimal amount of NPR is
units.
Without intervention, the private market would lead to an
of NPR.
Suppose the government decides to subsidize NPR in order to achieve the socially optimal amount of NPR.
The total demand function is Qr=
P.
The appropriate subsidy is $
(include 2 decimals) per unit of NPR.
Chapter 30 Solutions
Economics (MindTap Course List)
Ch. 30.1 - Prob. 1STCh. 30.1 - Prob. 2STCh. 30.2 - Prob. 1STCh. 30.2 - Prob. 2STCh. 30.2 - Prob. 3STCh. 30.2 - Prob. 4STCh. 30.3 - Prob. 1STCh. 30.3 - Prob. 2STCh. 30.3 - Prob. 3STCh. 30.4 - Prob. 1ST
Ch. 30.4 - Prob. 2STCh. 30.4 - Prob. 3STCh. 30.5 - Prob. 1STCh. 30.5 - Prob. 2STCh. 30.5 - Prob. 3STCh. 30 - Prob. 1QPCh. 30 - Prob. 2QPCh. 30 - Prob. 3QPCh. 30 - Prob. 4QPCh. 30 - Prob. 5QPCh. 30 - Prob. 6QPCh. 30 - Prob. 7QPCh. 30 - Prob. 8QPCh. 30 - Prob. 9QPCh. 30 - Prob. 10QPCh. 30 - Prob. 11QPCh. 30 - Prob. 12QPCh. 30 - Economists sometimes shock noneconomists by...Ch. 30 - Prob. 14QPCh. 30 - Prob. 15QPCh. 30 - Prob. 1WNGCh. 30 - Prob. 2WNGCh. 30 - Prob. 3WNG
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- Externalities Mark owns a butchery. His marginal cost of selling meat is MC = 0.35Q, where Q is the pounds of meat he sells. Mark is in a competitive market and can sell all the meat he wishes for $7 per pound. However, the smell from the butchery bothers the customers of George, the owner of the coffee shop next door. Assume that every pound of meat costs George $1.4 worth of lost business. If Mark focuses on maximizing his profit, how much would he sell? At the profit-maximizing quantity from part a, does selling the last pound of meat benefit the society. Calculate the social marginal cost and compare it to the marginal benefit. Note that here “society” refers to Mark and George. What is the socially optimal quantity of meat sold?arrow_forwardNational Public Radio (NPR) is a public good. The cost (supply) of each "unit" of NPR is P=2. Derek's valuation for each unit of NPR (demand) is given by PD=10–Q, and Kim's valuation is given by PK=4–0.25Q.The total social valuation (demand) of NPR is PS=Answer-AnswerQ.The socially optimal amount of NPR is Answer units. Without intervention, the private market would lead to an Answer of NPR.arrow_forwardConsider the market for accidental life insurance where firms are perfectly competitive (earn zero profit) and advantageous selection exists. Note that, like adverse selection in health insurance, advantageous selection has MC and AC that are positively correlated. Unlike adverse selection, however, MC and AC are increasing in Q under advantageous selection. More specifically, suppose that P = 280 - Q, MC = 40 + 2Q, and AC = 40 + Q. What is the free market equilibrium price and quantity? What is the socially optimal quantity? What price would support the sale of such a quantity? Are firm profits positive or negative at such a price? What is the deadweight loss from the free market equilibrium? What is the deadweight loss if the market for accidental life insurance is outlawed?arrow_forward
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