Answered: Define externalities. Discuss how the…

Define externalities. Discuss how the presence of externalities might affect the allocation of resources by a purely competitive industry.

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 2SCQ: Identify whether the market supply curve will shift right or left or will stay the same for the...

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Concept explainers

Market Failure Analysis

To understand Market failure, we need to first understand welfare economics. An Italian economist, Vilfredo Pareto stated that allocation of resources in an efficient manner such that an economic change, which harms no one and makes someone better off, indicates an increase in social welfare. It is also called Pareto Optimality, where resources cannot further be reallocated without harming one. This does not apply to those economic changes, which harm some and benefit others. social welfare increases if the utility of any of its members' increases and none decrease in the economy.

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6. Consider a good with a production process with fixed costs and constant marginal costs. Which of the following statements are correct? a) If marganal costs are zero the good is non-excludable. b) If marginal costs are zero the good is non-rival. c) A Pareto-efficient market equilibrium implies that the production process cannot cover its costs. d) A Pareto-efficient market equilibrium requires a price of zero.
Question: Define externalities. Discuss how the presence of externalities might affect the allocation of resources by a purely competitive industry.
1. There are 10 producers each with a cost curve C(q) = q². The demand curve is given 2000 10p. Each producer creates a MEC (marginal external cost) of $100 per unit produced. by D = a) What is the competitive equilibrium quantity produced and consumed? b) What is the efficient quantity?
Table 2 Imagine a small town in which only two residents, Lisa and Mark, own wells th Time left 1:57 drinking water. Each week Lisa and Mark work together to decide how many gallons of water to pump. They bring the water to town and sell it at whatever price the market will bear. To keep things simple, suppose that Lisa and Mark can pump as much water as they want without cost so that the marginal cost of water equals zero. The weekly town demand schedule and total revenue schedule for water is shown in the table below: Quantity (in gallons) 0 100 200 300 400 500 600 700 800 900 1,000 1,100 1,200 Price Select one: O a. 0 O b. 1,200 O c. 600 O d. 900 $120 110 100 90 80 70 60 50 40 30 20 10 0 Total Revenue (and Total Profit) $0 11,000 20,000 27,000 32,000 35,000 36,000 35,000 32,000 27,000 20,000 11,000 0 Refer to Table 2. If the market for water were perfectly competitive instead of monopolistic, how many gallo of water would be produced and sold?
Can externalities affect the allocation of resources by a perfectly competitive industry?
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Figure 10-1 Social Cost Supply 3.00 2.80 2.07 1.50 Demand 24 30 38 50 QUANTITY (Units oftobacco) Refer to Figure 10-1. This graph represents the tobacco industry. The industry creates O a. positive externalities. O b.no equilibrium isthe market. OC. negative externalities. O'd.no externalities. PRICE (Dollars per unit)
In an economy in which resources can move among industries with relative ease, a car. "in an ecsting to maximize short-term profits will sow the seeds of its own destruction. Explain.
Table 2 Imagine a small town in which only two residents, Lisa and Mark, own wells that produce sa drinking water. Each week Lisa and Mark work together to decide how many gallons of water to pump. They bring the water to town and sell it at whatever price the Time left 1:5 bear. To keep things simple, suppose that Lisa and Mark can pump as much water as they want without cost so that the marginal cost of water equals zero. The weekly town demand schedule and total revenue schedule for water is shown in the table below: Quantity (in gallons) 0 100 200 300 400 500 600 700 800 900 1,000 1,100 1,200 Select one: Price O a. $60 O b. $20 O c. $40 O d. $70 $120 110 100 90 80 70 60 50 40 30 20 10 0 Refer to Table 2. If Lisa and Mark operate as a profit-maximizing monopoly in the market for water, what price will they charge? Total Revenue (and Total Profit) $0 11,000 20,000 27,000 32,000 35,000 36,000 35,000 32,000 27,000 20,000 11,000 0
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1. Suppose a logging company cuts trees from a local wood, but that nearby homeowners use the woods for hunting deer, and that the cutting of trees decreases the amount of deer the homeowners can catch. Demand for the timber is given by P= 100 – X, and the logging company's (one of many, so market outcome is P = MPC), marginal costs of cutting down the trees is MPC - 4X. Suppose that once we include the damage done to the homeowners, the marginal social costs are determined to be MSC = X + 10. a. Suppose the logging firm owns the woods and logs all they want. How much do they produce? b. What would be the total value of the damage done to the homeowners in this case? What is the efficient level of production? с. d. What is the maximum amount (total) the homeowners would be willing to pay the logging firm to decrease production to the efficient level. What is the minimum amount (total) the firm would be willing to accept to decrease production to the efficient level? c. f. What will be…
Only typed answer and please don't use chatgpt The inverse demand for leather is given by P = 50-0.5Q. The industry supply of leather is determined by its marginal cost: MC = 0.4Q. Unfortunately, the production of leather causes noxious chemical residue to leach into groundwater supplies. The external marginal cost caused by these residues grows with the amount of output, and is measured as EMC = 0.05Q. 1A. How many leather is produced in the free market if the externality is not corrected. B) What is the free market price of the leather if the externality is not corrected? C) What is the social marginal cost?