2. Externality. The table below lists the expected daily benefits between a resident that owns a tree and a neighbor who receives benefits from the neighbor's tree in terms of a providing a green canopy, a view, and sheltering wildlife. The owner of the tree receives benefits from having the tree on his yard but must also bear the costs of watering and maintaining the tree. The question is who owns the right to decide if the tree should be cut down or not. Assume both parties can negotiate at zero cost Homeowner Neighbor Tree Stays $25 $35

2. Externality. The table below lists the expected daily benefits between a resident that owns a tree and a neighbor who receives benefits from the neighbor's tree in terms of a providing a green canopy, a view, and sheltering wildlife. The owner of the tree receives benefits from having the tree on his yard but must also bear the costs of watering and maintaining the tree. The question is who owns the right to decide if the tree should be cut down or not. Assume both parties can negotiate at zero cost Homeowner Neighbor Tree Stays $25 $35

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Which of these is an ideal economic situation that leads to a positive externality? a. Social costs are higher than private costs b. Private costs are equal to social costs c. Private costs are higher than social costs d. Private costs are lower than social costs
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1. True or False d. In the presence of an unpriced negative externality such as roadway congestion, marginal private benefit will be less than marginal social cost. e. The optimal level of roadway congestion is zero. f. The optimal congestion toll on a road would be the difference between marginal benefit and marginal private cost at the optimal level of road usage.
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2. The effect of negative externalities on the optimal quantity of consumption Consider the market for paper. Suppose that a paper factory dumps toxic waste into a nearby river, creating a negative externality for those living downstream from the factory. Producing an additional tonne of paper imposes a constant external cost of $105 per tonne. The following graph shows the demand (private value) curve and the supply (private cost) curve for paper. Use the purple points (diamond symbol) to plot the social cost curve when the external cost is $105 per tonne. (?) paper) PRICE (Dollars per tonne 700 630 560 490 420 350 280 210 140 70 0 0 ◇ 1 0 2 O 3 e O O The market equilibrium quantity is 3.5 O QUANTITY (Tonnes of paper) D Supply (Private Cost) Demand (Private Value) 7 Social Cost tonnes of paper, but the socially optimal quantity of paper production is 3 To create an incentive for the firm to produce the socially optimal quantity of paper, the government could impose a tax tonne of…
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2. The PMB associated with a product's consumption is PMB-SMB = 360 - 4Q and the PMC = 6Q. The marginal external damage associated with this good's production is MD=2Q. To correct the externality, the government decides to impose a tax of $T per unit sold. | a) What is the level of production without pollution? b) What is the socially optimal level of production? c) What tax should the government set to achieve the social optimum? d) Explain the difference in the two values in (a) and (b)?
4. Give an example of a negative externality and an example of a positive externality..?
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3. The effect of negative externalities on the optimal quantity of consumption Consider the market for steel. Suppose that a steel manufacturing plant dumps toxic waste into a nearby river, creating a negative externality for those living downstream from the plant. Producing an additional ton of steel imposes a constant external cost of $140 per ton. The following graph shows the demand (private value) curve and the supply (private cost) curve for steel. Use the purple points (diamond symbol) to plot the social cost curve when the external cost is $140 per ton. Sac Cont O Say Cet Demand P v QUANTITY (araf ste The market equilibrium quantity is tons of steel, but the socially optimal quantity of steel production is_ tons. To create an incentive for the firm to produce the socially optimal quantity of steel, the government could impose a ▼ of5 per ton of steel. d al anid
@ Refer to the table below, which describes the market for cigarettes in terms of marginal benefits, private marginal costs, and private+social marginal costs. Marginal benefits Private + social marginal costs $12 $8 $10 $10 $8 $12 $6 $14 $4 $16 Quantity 100 200 300 400 500 Calculate the equilibrium quantity of cigarettes that would be produced and sold if society incorporated the negative externalities of cigarettes by taxing cigarettes. Type your answer... == 3 80 F3 16 с $ 888 FA VER % DFL V 5 T G B FO MacBook Air Y Private marginal costs $4 $6 $8 $10 $12 H & 7 A tv NA F7 U N * 00 8 1 ( 9 M K F9 O O Aa zoom
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