Give an example of an externality.Explain how a tax or subsidy might be used to “correct” for the inefficiency of a market equilibrium in the presence of an externality.

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Answered: Give an example of an externality.

Essentials of Economics (MindTap Course List)

8th Edition

ISBN:9781337091992

Author:N. Gregory Mankiw

Publisher:N. Gregory Mankiw

Chapter10: Externalities

Section10.1: Externalities And Market Inefficiency

Problem 1QQ

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Give an example of an externality.
Explain how a tax or subsidy might be used to “correct” for the inefficiency of a market equilibrium in the presence of an externality.

Definition Video Formula Definition Phenomenon in which market supply and demand balance each other. Market equilibrium is the economic state in which the market demand curve intersects the market supply curve, giving us the equilibrium price and equilibrium quantity for which a commodity can be sold and purchased in an economy. When market equilibrium is achieved, it suggests that all resources have been allocated efficiently and that there is just a distribution of income and resources in the economy. Video Formula

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