Scenario: The following figure shows the private cost and social cost of producing Good X. Firm A is the producer of Good X. The production plant and Bob's house are located next to a river. However, the plant is upstream, and Bob's house is downstream. Since production pollutes the river, Bob suffers from a negative externality. MSC S * D Price Quantity 1) Refer to the scenario above. If the property rights to the river belong to the firm, what is the maximum transfer between the two parties necessary to make the firm produce the socially optimal quantity?(Use the letters to indicate the regions) A payment of from A payment of 2) Refer to the scenario above. If the property rights to the river belong to the firm, what is the minimum transfer between the two parties necessary to make the firm produce the socially optimal quantity? (Use the letters to indicate the regions) to from to

Scenario: The following figure shows the private cost and social cost of producing Good X. Firm A is the producer of Good X. The production plant and Bob's house are located next to a river. However, the plant is upstream, and Bob's house is downstream. Since production pollutes the river, Bob suffers from a negative externality. MSC S * D Price Quantity 1) Refer to the scenario above. If the property rights to the river belong to the firm, what is the maximum transfer between the two parties necessary to make the firm produce the socially optimal quantity?(Use the letters to indicate the regions) A payment of from A payment of 2) Refer to the scenario above. If the property rights to the river belong to the firm, what is the minimum transfer between the two parties necessary to make the firm produce the socially optimal quantity? (Use the letters to indicate the regions) to from to

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 40P: Show the market for cigarettes in equilibrium, assuming that there are no laws banning smoking in...

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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.
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?
(Negative Externalities) Suppose you wish to reduce a negative externality by imposing a tax on the activity that creates that externality. When the amount of the externality produced per unit of output increases as output increases, the correct tax can be determined by using a demand-supply diagram; show this. Assume that the marginal private cost curve slopes upward. Negative Externalities: The Market for Electricity in the Midwest:
on 7 When externalities exist, buyers and sellers red Select one: d out of a. neglect the external effects of their actions and the market equilibrium is efficient b. do not neglect the external effects of their actions and the market equilibrium is efficient on c. neglect the external effects of their actions and the market equilibrium is not efficient O d. do not neglect the external effects of their actions and the market equilibrium is not efficient on 8 A positive consumption externality will cause a market to red Select one: d out of a. produce less than is socially desirable O b. produce more than is socially desirable on c. produce more than is market optimal O d. produce less than is market optimal on 9 If only a few people are affected by an externality red Select one: d out of a. then it is likely that Pigovian taxes will provide the most efficient solution to the externality O b. then it is likely that command and control regulation will provide the most efficient solution…
ASAP plz Why don't people/stores make different decisions? Cost is a factor: a case of foam take-out containers costs $25, compared with $58 for paper and recyclable-plastics. How does this affect the firm's profit? Are consumers willing to pay more? Negative externality Consider the demand and supply given above. Suppose there is an external cost given by MEC=5Q. Find social equilibrium price and quantity. Draw a graph and label both private and social equilibrium.
3. The effect of negative externalities on the optimal quantityof consumption Consider the market for electric cars. Suppose that a electric car manufacturing facility dumps sludge into a nearby river, creating a negative externality for those living downstream from the facility. Producing additional electric cars imposes a constant per-unit external cost of $160. The following graph shows the demand (private value) curve and the supply (private cost) curve for electric cars. Use the purple points (diamond symbol) to plot the social cost curve when the external cost is $160 per unit. ? PRICE (Dollars per unit of electric cars) 800 720 640 560 480 400 320 240 160 80 0 0 O ☐ 1 ☐ O ☐ O ☐ ☐ O 2 3 5 QUANTITY (Units of electric cars) ☐ Supply (Private Cost) O Demand (Private Value) 6 7 Social Cost 1.5 To create an incentive for the firm to produce the socially optimal quantity of electric cars, the government could impose a per unit of electric cars. 2 2.5 3 3.5 4 4.5 5 5.5 The market…
3. The effect of negative externalities on the optimal quantityof consumption Consider the market for electric cars. Suppose that a electric car manufacturing facility dumps sludge into a nearby river, creating a negative externality for those living downstream from the facility. Producing additional electric cars imposes a constant per-unit external cost of $210. The following graph shows the demand (private value) curve and the supply (private cost) curve for electric cars. Use the purple points (diamond symbol) to plot the social cost curve when the external cost is $210 per unit. PRICE (Dollars per unit of electric cars) 1400 1260 1120 980 840 700 560 420 280 140 0 0 O U 1 U O O 2 3 4 5 QUANTITY (Units of electric cars) The market equilibrium quantity is 6 Supply (Private Cost) Demand (Private Value) 7 Social Cost ? units of electric cars, but the socially optimal quantity of electric car production is To create an incentive for the firm to produce the socially optimal quantity of…
11. Compared to a good with no externalities, a good with a negative externality will appear to have experienced a OIncrease in Supply ODecrease in Supply Olncrease in Demand ODecrease in Demand at each corresponding price...
9. Give an example of positive externality. Explain.
An externality exists whenever O the economy can benefit from government intervention. a person engages in an activity that influences the well-being of a bystander and yet neither pays nor receives payment for that effect. O markets are not able to reach equilibrium. O a firm sells its product in a foreign market.
Refer to Figure. The graph represents a market in which 24 22 22 Price 18 16 81 Social cost (private cost and external cost) Supply (private cost) Demand (private valne) 120 160 Quantity a. Othere is no externality. b. Othere is a positive externality. c. Othere is a negative externality. d. The answer cannot be determined from inspection of the graph.
Externalities: End of Chapter Problem In Chapter 6, we said that taxes create deadweight losses. When we tax goods with external costs, should we worry about deadweight losses? Why or why not? Any deadweight losses O should not conern us. Deadweight losses are the result of transactions that no longer occur and the problem with negative externalities is that too many transactions occur. O should concern us. If there is a negative externality associated with a good, the deadweight loss from a tax simply exacerbates society's welfare costs. from a tax are counter-productive. Why would we tax goods with negative externalities when the remedy for a negative externality is a subsidy? should concern us. Deadweight losses sound bad because they are bad; we should always avoid deadweight losses.