3. The weekly supply and demand for packs of cigarettes in Carcinia is given in Figure 18P-1. [ LO 18.2] a. Suppose cigarette smoking causes a $6/pack external cost on non-smokers. Draw the demand curve that would exist if the externality associated with smoking were internalized by consumers. b. How many packs of cigarettes are consumed per week? c. What is the efficient number of cigarette packs? d. What would be the total gain in surplus if this externality could be internalized? FIGURE 18P-1 Price ($) 36 34 32 30 28 26 24 22 20 18 SHZOB642 16 14 12 10 8 S 0 2 4 6 8 10 12 14 16 18 20 22 24 26 28 30 Packs of cigarettes (millions)
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- The market shown in Figure 6P-13 is in equilibrium. Suppose there is a $3 per unit subsidy given to buyers. Price ($) 18 16 14 12 10 8 6 4 S₁ D₁ a. Draw the after-subsidy demand curve. b. Plot the after-subsidy price paid by consumers and the after-subsidy price paid by sellers, and Calculate deadweight loss. c. Draw the deadweight loss after the subsidy. 2 0 20 40 60 80 100 120 140 160 180 200 Quantity (millions)The diagram below shows the marginal costs of pollution abatement for two firms, Firm 1 and Firm 2. Dollars 60 50 40 30 20 10 0 Firm 1 FIGURE 17-5 MC₁ li lz ls ls ls lo l Abatement Dollars 60 50 40 30 20 10 0 Firm 2 MC₂ li z ls ls ls Q6 Q7 Abatement Refer to Figure 17-5. Suppose Firm 1 and Firm 2 are each abating Q3 units of pollution. If the government imposed an emissions tax of $40 per unit of emissions, OA) each firm would abate to the same level. B) Firm 2 would increase abatement beyond Q3 and Firm 1 would abate less than Q3. C) each firm would abate to Q3. D) the level of pollution would be optimal. E) Firm 1 would increase abatement beyond Q3 and Firm 2 would abate less than Q3.The requirement that a firm adopt a particular technology to reduce emissions is an example of O 1) Command-and-control policies 2) Market-based policies O 3) Externalities O 4) Internalities
- PRICE (Dollars per unit of electric cars) 500 450 400 350 300 250 200 150 100 50 0 H 0 O □ 1 0 ■ The market equilibrium quantity is O 3 5 QUANTITY (Units of electric cars) ☐ Supply (Private Cost) 6 Demand (Private Value) 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 electric cars, the government could impose a per unit of electric cars. units. of 1If Compressed Natural Gas (CNG) powers vehicles and is an almost pollution-free fuel. If factory equipped, vehicles can switch between using either CNG or ordinary gasoline. It costs under $4000 extra to buy such a factory-equipped auto. However, the auto industry makes little effort to promote the use of CNG. Instead, the auto industry is rushing to introduce battery-powered autos that use expensive, heavy and dangerous Lithium Ion batteries. Suppose the government sufficiently subsidized the installation of CNG pumps at public service stations. QUESION: Would the effect on demand for CNG powered autos INCREASE OR DECREASE?3. Voluntary contributions toward a public goodLarry and Raphael are considering contributing toward the creation of a public park. Each can choose whether to contribute $400 to the public park or to keep that $400 for a new suit.Since a public park is a public good, both Larry and Raphael will benefit from any contributions made by the other person. Specifically, every dollar that either one of them contributes will bring each of them $0.80 of benefit. For example, if both Larry and Raphael choose to contribute, then a total of $800 would be contributed to the public park. So, Larry and Raphael would each receive $640 of benefit from the public park, and their combined benefit would be $1,280. This is shown in the upper left cell of the first table.Since a new suit is a private good, if Larry chooses to spend $400 on a new suit, Larry would get $400 of benefit from the new suit and Raphael wouldn't receive any benefit from Larry's choice. If Larry still spends $400 on a new suit and…
- 1. Chapter 4 Market Failure Caused by Externalities Page 94 Problem 1 Draw a supply and demand graph and identify the areas of consumer surplus and producer surplus. Given the demand curve, how will an increase in supply affect the amount of surplus shown in your diagram ? Explain. LO4.1 (Differentiate between demand-side market failures and supply-side market failures.QUESTION 19 28 24 20 16 12 8 4 P 0 4 8 S1 12 16 19. A possible explanation for supply shifting from S1 to S2 is O a) an improvement in technology. b) a decrease in demand. an increase in demand. d) an increase in the cost of energy. e) an increase in the number of buyers. D1 - 20 S2 D2 24 O QUESTION 20 20. Given that the U.S. government mandates the use of ethanol as a partial substitute for gasoline, and that ethanol manufactured in the U.S. is made from corn, what will happen if scientists develop a new highly efficient method of storing electrical energy? O a) Demand for ethanol will increase b) Demand for ethanol will decrease c) Supply of ethanol will increase d) Supply of ethanol will decrease e) None of the aboveSuppose the equation for the demand curve in a market is P=100 – 2Q. Also, suppose the equation for the supply curve in the same market is P=10+3Q. Suppose there is an external cost of $20 associated with the production of each unit of the good. The socially optimal quantity is O 4 units smaller than the market equilibrium quantity. O 22 units greater than the market equilibrium quantity O 14 units smaller than the market equilibrium quantity O 4 units greater than the market equilibrium quantity.
- Suppose that the demand and supply functions for a good are given as follows: Demand: 0 = 600-5P Supply: 0 Suppose now that government imposes $27 tax per unit of output on sellers. What is the burden on sellers? =-300+4P O 27 12 15Suppose there is a public good, this good would add 50 dollars in benefit to each of the 1000 people living in the city. At what costs would they agree to build it? O 75000 O 40000 O 25000 O both 40000 and 25000PRICE (Dollars per unit of electricity) 2000 1800 1600 1400 1200 1000 800 600 400 200 0 1 O 4 5 QUANTITY (Units of electricity) 3 6 Supply (Private Cost) Demand (Private Value) 7 Social Cost ? The market equilibrium quantity is units of electricity, but the socially optimal quantity of electricity production is To create an incentive for the firm to produce the socially optimal quantity of electricity, the government could impose a unit of electricity. units. of $ per