Part 2- Graph It- The graph below shows an unregulated market for high powered consumerfireworks. Assume that each box of fireworks generates $40 of external costs on society and that thedemand equals the marginal social benefit.Price3. Identify the equilibrium price and quantityproduced by the unregulated market.$80Supply4. Add a marginal social cost (MSC) curve tothe graph and identify the socially optimalprice and quantity.S70S60$505. At the quantity of 50 boxes of fireworks,shade in the area of deadweight loss.$40$306. Assume that the government imposes a $20per unit tax on fireworks. Does this policyeliminate deadweight loss? Explain.$20$10DemandO 10 20 30 40 50 60 70 80Quantity (boxes)

Externalities are essential in economics because they represent the unanticipated consequences of…

Part 2 - Graph It-The graph below shows an unregulated market for high powered consumer fireworks. Assume that each box of fireworks generates $40 of external costs on society and that the demand equals the marginal social benefit. 3. Identify the equilibrium price and quantity produced by the unregulated market. 4. Add a marginal social cost (MSC) curve to the graph and identify the socially optimal price and quantity. 5. At the quantity of 50 boxes of fireworks, shade in the area of deadweight loss. 6. Assume that the government imposes a $20 per unit tax on fireworks. Does this policy eliminate deadweight loss? Explain. Price $80 $70 $60 $50 $40 $30 $20 $10 Supply Demand 0 10 20 30 40 50 60 70 80 Quantity (boxes)

Part 2 - Graph It-The graph below shows an unregulated market for high powered consumer fireworks. Assume that each box of fireworks generates $40 of external costs on society and that the demand equals the marginal social benefit. 3. Identify the equilibrium price and quantity produced by the unregulated market. 4. Add a marginal social cost (MSC) curve to the graph and identify the socially optimal price and quantity. 5. At the quantity of 50 boxes of fireworks, shade in the area of deadweight loss. 6. Assume that the government imposes a $20 per unit tax on fireworks. Does this policy eliminate deadweight loss? Explain. Price $80 $70 $60 $50 $40 $30 $20 $10 Supply Demand 0 10 20 30 40 50 60 70 80 Quantity (boxes)

Principles of Economics 2e

2nd Edition

ISBN:9781947172364

Author:Steven A. Greenlaw; David Shapiro

Publisher:Steven A. Greenlaw; David Shapiro

Chapter12: Environmental Protection And Negative Externalities

Section: Chapter Questions

Problem 42P: Table 12.12, shows the supply and demand conditions for a firm that will play trumpets on the...

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Similar questions

Show the market for cigarettes in equilibrium, assuming that there are no laws banning smoking in public. Label the equilibrium private market price and quantity as Pm and Qm. Add whatever is needed to the model to show the impact of the negative externality from second-hand smoking. (Hint: In this case it is the consumers, not the sellers, who are creating the negative externality.) Label the social optimal output and price as Fe and Qe. On the graph, shade in the deadweight loss at the market output.
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.
Refer to Table 12.2. The externality created by the refrigerator production was 100. However, once we accounted for both the private and additional external costs, the market price increased by only 50. If the external costs were 100 why did the price only increase by 50 when we accounted for all costs?
Classify the following pollution-control policies as command-and-control or market incentive based. A state emissions tax on the quantity of carbon emitted by each firm. The federal government requires domestic auto companies to improve car emissions by 2020. The EPA sets national standards for water quality. A city sells permits to films that allow them to emit a specified quantity of pollution. The federal government pays fishermen to preserve salmon.
The rows in Table 12.7 show three market-oriented tools for reducing pollution. The columns of the table show three complaints about command-and-control regulation. Fill in the table by stating briefly how each market-oriented tool addresses each of the three concerns.
Suppose you want to put a dollar value on the external costs of carbon emissions from a power plant. What information or data would you obtain to measure the external [not social] cost?