Exploring Economics
8th Edition
ISBN: 9781544336329
Author: Robert L. Sexton
Publisher: SAGE Publications, Inc
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Textbook Question
Chapter 8, Problem 2P
Draw a standard
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.
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Consider Good A. There are NO externalities associated with Good A.
a.) Draw a ( general- you don’t need any specific numbers) graph that shows the deadweight loss that would result if a tax is placed on Good A.
b.) Suppose that, after the tax is placed on Good A, the quantity consumed ( by all customers) is equal to 90,000 units of Good A. Is the efficient level of output in the market for Good A greater than 90,000 , less than 90,000 , or equal to 90,000 ( just circle your answer ; you don’t have to explain)? (7)
The efficient level is greater than 90,000
The efficient level is less than 90,000
The efficient level is equal to 90,000
Let the supply and demand for widgets be given by the following schedule.
Price: 3, 4, 5, 6, 7, 8, 9, 10, 11
Quantity Supplied: 100, 200, 300, 400, 500, 600, 700, 800, 900
Quantity Demanded: 900, 800, 700, 600, 500, 400, 300, 200, 100
a. What quantity will be produced here?
b. What quantity is efficient if there are no external costs or benefits?
c. What quantity is efficient if there is an external cost of $6 per unit from pollution caused by the widget factories?
Use the graph attached below as a starting point (either download it or print it out). Add curves, labels, etc. to this graph in order to show the following:
1. Show that this good has a $4/unit negative externality (external cost), such as pollution.
2. Shade the area that represents the Deadweight Loss (lost gains from trade) caused by the external cost.
3. Show a tax or subsidy wedge (whichever you think is appropriate) that will solve the problem of the external cost.
4. Show the socially optimal level of production that the Pigouvian tax or subsidy above will help the market to achieve.
You may use software or pencil and paper to complete this graph. Upload it here when you are done.
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