EBK INTERNATIONAL ECONOMICS
7th Edition
ISBN: 9780134523873
Author: Gerber
Publisher: YUZU
expand_more
expand_more
format_list_bulleted
Question
Chapter 5, Problem 9SQ
To determine
Illustrate the
Expert Solution & Answer
Want to see the full answer?
Check out a sample textbook solution
Students have asked these similar questions
A set of perfectly competitive companies
produce shoes. 1 pound of water pollution
(WP) is released into the ocean which has a
social cost of $c (per pound). The private cost
of pollution is $0 when unregulated.
i) Graph supply and demand curves and show
the output and price of the unregulated
market as well as the socially optimal output.
ii) Indicate on the graph the amount of tax
that would lead to the socially optimal level of
production.
iii) One of the companies produces Q shoes.
Say there are pollution-reducing machines, K,
which cost $1 each. When K = Ő machines,
WP = 1 pound. With higher K, WP is lower.
Give the cost-minimizing choice of WP and K
when pollution is unregulated? Please explain
with a diagram.
iv) What would be the optimal tax rate if the
government were to tax water pollution?
v) When output of shoes Q is held constant,
how do K and WP change when a pollution
tax is instated?
Use the following supply and demand graph to answer the question below.
S₁
S₂
Price
J
E
0
A B с
Quantity
D₂
-D₁
S₁ and D₁ represent the current market supply and demand, respectively. S2 and D2 represent the socially optimal supply and demand. The positions of
the graphs indicate that there is (are) external
Multiple Choice
costs from production and consumption of the product.
costs from production and external benefits from consumption of the product.
The supply and demand conditions facing a firm that makes widgets and generates a negative externality by dumping a highly toxic sludge in a nearby river is given in the table below.
Price
Quantity Demanded
Quantity Supplied without Paying Social Costs
Quantity Supplied after Paying Social Costs
100
0
120
75
80
10
100
50
55
30
90
30
40
55
85
25
30
80
80
20
20
100
65
15
The equilibrium price and quantity when social costs are taken into account are
Question 3 options:
Price = $55; Quantity 30
Price = $40; Quantity 55
Price = $30; Quantity 20
Price = $30; Quantity 80
Chapter 5 Solutions
EBK INTERNATIONAL ECONOMICS
Knowledge Booster
Similar questions
- Draw a standard supply and demand diagram for televisions, and indicate the equilibrium price and output. a. Assuming that the production of televisions generates external costs, illustrate the effect of the producers being forced to pay a tax equal to the external costs generated, and indicate the equilibrium output. b. If instead of generating external costs, television production generates external benefits, illustrate the effect of the producers being given a subsidy equal to the external benefits generated, and indicate the equilibrium output.arrow_forward(Optimal Provision of Public Goods) Using at least two individual consumers, show how the market demand curve is derived from individual demand curves (a) for a private good and (b) for a public good. Once you have derived the market demand curve in each case, introduce a market supply curve and then show the optimal level of production.arrow_forwardThe perfectly competitive profit-maximizing firm in Exhibit 6 creates water and air pollution as a consequence of producing its output of pigs. If pollution costs are borne by third parties, the firm will maximize economic profit by choosing to a. voluntarily incur costs to reduce its pollution. b. produce at output rate Q3. c. produce at output rate Q2. d. produce at output rate Q4. EXHIBIT 6 Private and Social Costarrow_forward
- Please hand written not allowed.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_forwardPlease answer precisely and clearly. thank you.arrow_forward
- Consider the market for pharmaceuticals. Suppose that a pharmaceutical factory dumps toxic waste into a nearby river, creating a negative externality for those living downstream from the factory. Producing additional pharmaceuticals imposes a constant per-unit external cost of $120. The following graph shows the demand (private value) curve and the supply (private cost) curve for pharmaceuticals. Use the purple points (diamond symbol) to plot the social cost curve when the external cost is $120 per unit. ? PRICE (Dollars per unit of pharmaceuticals) 800 720 640 560 480 400 3:20 240 160 80 0 0 O 1 O ☐ The market equilibrium quantity is O 2 3 5 QUANTITY (Units of pharmaceuticals) 4 6 Supply (Private Cost) Demand (Private Value) 7 Social Cost units of pharmaceuticals, but the socially optimal quantity of pharmaceuticals production is To create an incentive for the firm to produce the socially optimal quantity of pharmaceuticals, the government could impose a per unit of pharmaceuticals.…arrow_forwardTable shows the supply and demand conditions for a firm that will play trumpets on the streets when requested. Qs1 is the quantity supplied without social costs. Qs2 is the quantity supplied with social costs. What is the negative externality in this situation? Identify the equilibrium price and quantity when we account only for private costs, and then when we account for social costs. How does accounting for the externality affect the equilibrium price and quantity?arrow_forwardAn externality arises when a firm or person engages in an activity that affects the well-being of a third party, yet neither pays nor receives any compensation for that effect. If the impact on the third party is beneficial, it is called a externality. The following graph shows the demand and supply curves for a good with this type of externality. The dashed drop lines on the graph reflect the market equilibrium price and quantity for this good. Adjust the following graph to reflect the presence of the externality. If the social cost of producing the good is not equal to the private cost, then you should shift the supply curve to reflect the social costs of producing the good; similarly, if the social value of producing the good is not equal to the private value, then you should shift the demand curve to reflect the social value of consuming the good. (Note: MPC stands for marginal private costs, MSC stands for marginal social costs, MPB stands for marginal private benefits, and MSB…arrow_forward
- Suppose the equation for the demand curve in a market is P=100 - 1.5Q. Also, suppose the equation for the supply curve in the same market is P=0.5Q. Suppose there is an external cost of $40 associated with the production of each unit of the good. What is the socially optimal quantity, and what is the price at this quantity? P=$31 Q=46 P=$34 Q=44 P=$55 Q=30 P=$2 Q=44 O.arrow_forwardAmityville has a competitive chocolate industry with the (inverse) supply curve Ps = 440 + Q. While the (inverse) market demand for chocolate is pd = 1200 – Q, there are external benefits that the citizens of Amityville derive from having a chocolate odor wafting through town. The marginal external benefit schedule is MEB = 60 – 0.05Q. 1. What is the socially optimal amount of chocolate production in Amityville? 2. Since there is a positive externality, the level of chocolate production in a competitive market will be too low. If the government of Amityville used a subsidy of $S per unit to encourage the optimal amount of chocolate production, what level should that subsidy be? Hint: the principle is the same as finding the optimal tax when there is a negative externality, the subsidy should be related to the marginal external benefit just like the tax is related to the marginal external cost.arrow_forwardConsider 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 $700. 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 $700 per unit. PRICE (Dollars per unit of electric cars) 2000 1800 1600 1400 1200 1000 800 600 400 200 0 Supply (Private Cost) X 0 1 2 3 4 5 QUANTITY (Units of electric cars) The market equilibrium quantity is 6 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 electric cars, the government could impose a per unit of electric cars. units. of $arrow_forward
arrow_back_ios
SEE MORE QUESTIONS
arrow_forward_ios
Recommended textbooks for you
Exploring EconomicsEconomicsISBN:9781544336329Author:Robert L. SextonPublisher:SAGE Publications, Inc
Economics (MindTap Course List)EconomicsISBN:9781337617383Author:Roger A. ArnoldPublisher:Cengage Learning
Exploring Economics
Economics
ISBN:9781544336329
Author:Robert L. Sexton
Publisher:SAGE Publications, Inc
Economics (MindTap Course List)
Economics
ISBN:9781337617383
Author:Roger A. Arnold
Publisher:Cengage Learning