PRICE (Dollars per unit) An externality arises when a firm or person engages in an activity that affects the wellbeing of a third party, yet neither pays nor receives any compensation for that effect. If the impact on the third party is adverse, it is called a externality. The following graph shows the demand and supply curves for a good with this type of externality. The dashed drop lines on the graph reflect the market equilibrium price and quantity for this good. Adjust one or both of the curves to reflect the presence of the externality. If the social cost of producing the good is not equal to the private cost, then you should drag the supply curve to reflect the social costs of producing the good; similarly, if the social value of producing the good is not equal to the private value, then you should drag the demand curve to reflect the social value of consuming the good. QUANTITY (Units) Supply Demand Demand Supply With this type of externality, in the absence of government intervention, the market equilibrium quantity produced will be socially optimal quantity. Which of the following generate the type of externality previously described? Check all that apply. than the The city where you live has granted a permit to put a movie theater in your neighborhood, causing traffic jams at night and on weekends. Your roommate Gilberto has bought a bird that keeps you up at night with its chirping. A leading electronics manufacturer has discovered a new technology that dramatically improves the picture quality of plasma televisions. Firms of all brands have free access to this technology. Charles has planted several trees in his backyard that increase the beauty of the neighborhood, especially during the fall foliage season.
PRICE (Dollars per unit) An externality arises when a firm or person engages in an activity that affects the wellbeing of a third party, yet neither pays nor receives any compensation for that effect. If the impact on the third party is adverse, it is called a externality. The following graph shows the demand and supply curves for a good with this type of externality. The dashed drop lines on the graph reflect the market equilibrium price and quantity for this good. Adjust one or both of the curves to reflect the presence of the externality. If the social cost of producing the good is not equal to the private cost, then you should drag the supply curve to reflect the social costs of producing the good; similarly, if the social value of producing the good is not equal to the private value, then you should drag the demand curve to reflect the social value of consuming the good. QUANTITY (Units) Supply Demand Demand Supply With this type of externality, in the absence of government intervention, the market equilibrium quantity produced will be socially optimal quantity. Which of the following generate the type of externality previously described? Check all that apply. than the The city where you live has granted a permit to put a movie theater in your neighborhood, causing traffic jams at night and on weekends. Your roommate Gilberto has bought a bird that keeps you up at night with its chirping. A leading electronics manufacturer has discovered a new technology that dramatically improves the picture quality of plasma televisions. Firms of all brands have free access to this technology. Charles has planted several trees in his backyard that increase the beauty of the neighborhood, especially during the fall foliage season.
Chapter1: Making Economics Decisions
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Transcribed Image Text:PRICE (Dollars per unit)
An externality arises when a firm or person engages in an activity that affects the wellbeing of a third party, yet neither pays nor receives any
compensation for that effect. If the impact on the third party is adverse, it is called a
externality.
The following graph shows the demand and supply curves for a good with this type of externality. The dashed drop lines on the graph reflect the
market equilibrium price and quantity for this good.
Adjust one or both of the curves to reflect the presence of the externality. If the social cost of producing the good is not equal to the private cost, then
you should drag the supply curve to reflect the social costs of producing the good; similarly, if the social value of producing the good is not equal to
the private value, then you should drag the demand curve to reflect the social value of consuming the good.
QUANTITY (Units)
Supply
Demand
Demand
Supply
With this type of externality, in the absence of government intervention, the market equilibrium quantity produced will be
socially optimal quantity.
Which of the following generate the type of externality previously described? Check all that apply.
than the
The city where you live has granted a permit to put a movie theater in your neighborhood, causing traffic jams at night and on weekends.
Your roommate Gilberto has bought a bird that keeps you up at night with its chirping.
A leading electronics manufacturer has discovered a new technology that dramatically improves the picture quality of plasma televisions.
Firms of all brands have free access to this technology.
Charles has planted several trees in his backyard that increase the beauty of the neighborhood, especially during the fall foliage season.
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