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?
Explain a positive and negative externality that you have recently consumed. Please relate your answer to the characteristics of elasticity. Why does the government have to get involved when an externality is present in the market?
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- The United States government subsidizes many so-called green companies. For instance, it has given millions of dollars to solar panel companies. In the market for solar power, illustrate what the government subsidies mean.arrow_forwardUse 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.arrow_forwardDoes it make sense that accounting for the negative externality results in a higher price? Explain your answer. Does it make sense that accounting for the negative externality results in a lower quantity? Explain your answer.arrow_forward
- Use appropriate figures to show the deadweight losses associated with a) positive externalities b) negative externalities (in a perfectly competitive goods market)arrow_forwardUse the table below to answer the questions: A. Find the equilibrium price, assuming sellers ignore negative externalities. B. Find the equilibrium quantity, assuming sellers ignore negative externalities. C. Find the optimal price, including external costs. Find the optimal quantity, including external costs.arrow_forwardThe market for Booming Berries contains a? a) Negative Externality b) Positive externality How can I tell distinguish if it contains a positive or negative externality with the given information?arrow_forward
- Price MCS $5 per unit MC P B cID H Quantity QE Negative Externality The following questions refer to the accompanying diagram, which shows the effects of a negative externality created by an industry's production. Refer to the graph. According to a Pigovian analysis of this externality, when a tax of $5 per unit is imposed on the firms in this industry, the external costs created by the firms' production will equal area C + D + E + G + H. ) area C + D + G + H. area C+ G. zero.arrow_forwardIdentify at least one positive externality from running a donut shop. Identify at least one negative externality from running a donut shop. Explain how these positive and negative externalities could impact the donut shop’s profits. (Hint: think subsidy for positive externality and tax for negative externality.) Draw two graphs that show the price of donuts before and after the positive and negative externality impacted the price of your donuts.arrow_forwardOn a generic supply-demand graph, show the deadweight loss ( DWL) of a price ceiling that is placed below the equilibrium price for a product ( you should assume that there are NO externalities associated with the product).arrow_forward
- Draw a supply curve and describe the external factors that determine supply.arrow_forwardExplain the difference between a positive externality and a negative externality. Can both types of externalities result in market failure? Why or why not?arrow_forwardThe National Hockey League decides to put a new franchise in Hamilton which is close to existing teams in Buffalo and Toronto. Which of the following best describes the impact of this decision? Select one: a. product-variety externality, which harms consumers b. business-stealing externality, which benefits consumers c. product-variety externality, which benefits consumers d. business-stealing externality, which harms consumersarrow_forward
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