Economics For Today
10th Edition
ISBN: 9781337613040
Author: Tucker
Publisher: Cengage Learning
expand_more
expand_more
format_list_bulleted
Videos
Question
Chapter 14, Problem 5SQ
To determine
The meaning of the private cost.
Expert Solution & Answer
Want to see the full answer?
Check out a sample textbook solution
Students have asked these similar questions
Lecture: Externality - Pigou8. All-Leather is a tanning company located on Lake Michigan in Chicago. Its total cost functionis C(QA) = 125 + 8QA + 5QA2, where QA is leather production per week in thousands of pounds.a) If leather sells for $408 per thousand pounds, how much leather will All-Leather produce?How much profit does All-leather earn?Enjoy is a beverage company located on Lake Michigan near All-Leather in Chicago. Enjoy’sproduction of beverages is negatively affected by water pollution from All-Leather’s productionof leather. Enjoy’s total cost function to produce beverages isC(QE) = 10QE +3QE2 + 3QA2where QE is Enjoy’s weekly production of beverages, in thousandsof gallons and, as above, QA is All-Leather’s weekly production of leather.b) Is this an example of a pecuniary externality or a real externality? Explain.c) What is the extra cost to Enjoy from an additional thousand tons of leather production by AllLeather (i.e., the external marginal cost of an extra unit of QA…
Soybeans are produced and sold in a perfectly competitive market. The fertilizers used in soybean production generate a negative externality by seeping liquid contaminants into local rivers. The local rivers are, as a result, suffering.
(a) Draw a correctly labeled graph of the soybean market, and show each of the following.
(i) The marginal private cost, labeled MPC
(ii) The marginal social cost, labeled MSC
(iii) The marginal social benefit, labeled MSB
(iv) The market equilibrium quantity, labeled Qc
(v) The socially optimal quantity, labeled Qs
(vi) The area of the deadweight loss, shaded completely
(b) Assume the government sets a binding price floor such that the quantity demanded in the market is between Qs and Qc.
(i) What will happen to the quantity produced?
(ii) Will the price floor reduce the deadweight loss? Explain.
(c) Assume instead of a price floor, the government decides to impose a lump-sum tax. What will happen to the socially optimal quantity? Explain.
(d) Assume…
The market for perfume is characterized by:
MPB=200-Q
and
MPC= 3Q
with a marginal social benefit of -$12 caused by the others smelling the perfume. The externality is ______ and on the _____ side of the market. The inefficient quantity is ______ and the price is _____. The allocatively efficient quantity in the market is ______. If the government were to correct the externality, it would _______ the market by $______ per unit of perfume.
Word Bank:
negative, demand, 50, 150, 47, tax, 12, positive, supply, subsidy
Chapter 14 Solutions
Economics For Today
Ch. 14.2 - Prob. 1.1GECh. 14.2 - Prob. 1.2GECh. 14.2 - Prob. 1.3GECh. 14.2 - Prob. 2.1GECh. 14.2 - Prob. 2.2GECh. 14.2 - Prob. 2.3GECh. 14.2 - Prob. 2.4GECh. 14 - Prob. 1SQPCh. 14 - Prob. 2SQPCh. 14 - Prob. 3SQP
Ch. 14 - Prob. 4SQPCh. 14 - Prob. 5SQPCh. 14 - Prob. 6SQPCh. 14 - Prob. 7SQPCh. 14 - Prob. 8SQPCh. 14 - Prob. 9SQPCh. 14 - Prob. 10SQPCh. 14 - Prob. 11SQPCh. 14 - Prob. 12SQPCh. 14 - Prob. 13SQPCh. 14 - Prob. 14SQPCh. 14 - Prob. 15SQPCh. 14 - Prob. 16SQPCh. 14 - Prob. 1SQCh. 14 - Prob. 2SQCh. 14 - From an economic viewpoint, the optimal amount of...Ch. 14 - Prob. 4SQCh. 14 - Prob. 5SQCh. 14 - Prob. 6SQCh. 14 - Prob. 7SQCh. 14 - Prob. 8SQCh. 14 - Prob. 9SQCh. 14 - Prob. 10SQCh. 14 - Prob. 11SQCh. 14 - Prob. 12SQCh. 14 - Prob. 13SQCh. 14 - Prob. 14SQCh. 14 - Prob. 15SQCh. 14 - Prob. 16SQCh. 14 - Prob. 17SQCh. 14 - Prob. 18SQCh. 14 - Prob. 19SQCh. 14 - Prob. 20SQ
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, economics and related others by exploring similar questions and additional content below.Similar questions
- The 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(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_forwardWhich of the following statements about pollution taxes, cap and trade, or command-and-control standards is FALSE? a.) Pollution taxes strictly control the amount of pollution but leave marginal abatement costs to be determined by the market. Cap-and-trade programs strictly control marginal abatement costs but leave the actual amount of pollution to be determined by the overall level of economic activity. b.) Pollution taxes are unpopular in the U.S. because American companies tend to dislike taxes in general. However, pollution taxes offer firms some greater certainty about how large will be their marginal cost of abatement on the last unit of abatement they will need to do, if they are to minimize the costs they incur both for cleanup and for pollution taxes. c.) Both command-and-control pollution standards, and cap-and-trade programs, can effectively limit the total amount of pollution, but command and control will be least-cost only by accident. Usually,…arrow_forward
- The market for plasticans is perfectly competitive. Market Supply is givenby Q=8P and Market Demand is given by Q=417-3P. Each extra unit ofplastican produced imposes a negative externality of $7. What is theefficient quantity? Efficient quantity is determined by setting Marginal Social Costs(=Marg. Pvt. Cost + Marg. External Cost.) equal to Marg. SocialCost=MWTP which is captured by the Demand curve.arrow_forwardOnly typed answer You are an industry analyst that specializes in an industry where the market inverse demand is P = 100 - 3Q. The external marginal cost of producing the product is MCExternal = 6Q, and the internal cost is MCInternal = 14Q. Instruction: Round your answers to the nearest two decimal places. a. What is the socially efficient level of output? units b. Given these costs and market demand, how much output would a competitive industry produce? units c. Given these costs and market demand, how much output would a monopolist produce? units d. Which of the following are actions the government could take to induce firms in this industry to produce the socially efficient level of output. Instructions: You may select more than one answer. Click the box with a check mark for the correct answers and click twice to empty the box for the wrong answers. You must click to select or deselect each option in order to receive full credit. Pollution taxes…arrow_forwardIn Guadeloupe and Martinique, the use of pesticide chlordecone on banana plantations led to devastation of fishing communities downstream. Which of the following are possible solutions? 1) Force the pesticide users to bear the costs incurred by the fishing communities. 2) Ban the use of the pesticide. 3) Let the banana producers also own the fisheries. 4) Regulate the use of the pesticide.arrow_forward
- Suppose the marginal cost (MC) and marginal benefit (MB) of reducing nitrogen oxide air pollution are illustrated in the figure. Suppose initially 3 million tons of nitrogen oxides are being reduced. What is the net benefit to society of increasing the elimination of nitrogen oxide air pollution to 6 million tons? The net benefit is $ million. (Enter your response rounded to one decimal place.) Cost or benefit ($ per ton) 500- 450 400- 350- 300- 250- 200- 150- 100- 50- 0- 0 1 MC 2 3 4 5 6 7 8 Reduction (millions of tons per year) MB 9 10arrow_forwardElla lives in Flint Michigan where the city water was contaminated with harmful chemicals and lead. Ella’s infant now suffers from mental retardation due to lead poisoning. This is an example of Group of answer choices social cost for Ella and her family because they bear some cost derived from the water distribution activity. private cost for Ella and her family because they do pay for the water they receive from the city of Flint. external cost for Ella and her family because they bear some cost derived from the water distribution activity.arrow_forwardTrue/False: Suppose there are two polluting firms that have different marginal abatement cost curves, MCA1 and MCA2. Any combination of pollution abatement levels, A1 for firm 1 and A2 for firm 2, that minimizes the total cost of abatement will also produce the allocatively efficient level of total abatement AE. Explain. Credit is given for the thoroughness of the explanation. Include a graph in your answer.arrow_forward
- The figure to the right shows the marginal cost of pollution abatement for two firms, A and B. The firms were initially abating 46 units of pollution each. Now they can trade pollution permits at a price of $22. As a result, firm A sells permits and firm B buys permits. Both firms are now better off and their total saving will be $ (Enter your answer rounded to the nearest whole number.) Dollars per Unit ($) 34 22 10 The Efficiency of Tradable Pollution Permits MCB 31 46 61 Quantity of Pollution Abatement MCA Narrow_forwardYou have the following supply and demand curves for an industry: QSX = -100 + 3 * PX for PX >= $40 QDX = 300 – 2 * PX However, this industry causes pollution damage to third parties. Each quantity produced creates pollution that causes equal damage, such that the marginal external cost is a constant $20 per unit (MEC= $20). a) Calculate the price quantity combinations for both the perfectly competitive and the efficient solution. Graphically show both solutions as well. Make sure you label all curves and axes. b) What efficient tax would move the competitive market to the efficient solution?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_forward
arrow_back_ios
SEE MORE QUESTIONS
arrow_forward_ios
Recommended textbooks for you
Environmental Law: The Clean Air Act; Author: LawShelf;https://www.youtube.com/watch?v=1-SH3kJpVA4;License: Standard Youtube License