(a) Does an externality exist? If so, is it positive/negative (or both) (b) Use Coase’s framework to identify the cause of the externality (c) If an externality exists, determine whether the Coase theorem applies (i.e. is it possible/feasible to assign property rights and solve the problem?). Provide reasoning. (d) If an externality exists and the Coase theorem does not apply, discuss a government/institutional solution that can mitigate the problem of externality. Provide reasoning.
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Answer the following for the given example (for a
(a) Does an externality exist? If so, is it positive/negative (or both)
(b) Use Coase’s framework to identify the cause of the externality
(c) If an externality exists, determine whether the Coase theorem applies (i.e. is it possible/feasible to assign property rights and solve the problem?). Provide reasoning.
(d) If an externality exists and the Coase theorem does not apply, discuss a government/institutional solution that can mitigate the problem of externality. Provide reasoning.
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- Consider the case of: Buying a car with added safety features that prevent the drivers and passengers’ deaths in the event of an accident (a) Does an externality exist? If so, is it positive/negative (or both) (b) Use Coase’s framework to identify the cause of the externality (c) If an externality exists, determine whether the Coase theorem applies (i.e. is it feasible to assign property rights and solve the problem?)Consider the case of: Buying a car with added safety features that prevent the drivers and passengers’ deaths in the event of an accident (a) Does an externality exist? If so, is it positive/negative (or both) (b) Use Coase’s framework to identify the cause of the externality (c) If an externality exists, determine whether the Coase theorem applies (i.e. is it feasible to assign property rights and solve the problem?) (d) If an externality exists and the Coase theorem does not apply, discuss a government/institutional solution that can mitigate the problem of externalityBased on the conditions laid out in the Coase Theorem, which of the following would lead to the failure of the Coase Theorem to resolve an externality: a. high transaction costs associated with dealing with a large number of people affected by the externality (e.g. high cost of coordinating decisionmaking) b. the property rights associated with a specific resource belong to society c. within a given market, a firm's production process causes the marginal cost of one firm to be less than the marginal cost to society d. all of the above e. both a and b are correct
- Assume a market for fertilizers, and let D denote the demand of fertilizers while S their supply. The inverse demand is p = 10 - q, and the supply is MC = q. The marginal damage created by runoff water being exposed to fertilizers is MEC = q/2 The use of fertilizers is creating an externality and the government wishes to intervene in the market. Use a figure to depict the competitive outcome. Derive the competitive equilibrium outcome. Use a second figure to explain the negative externality attributed to the use of fertilizers. The use of fertilizers improves yield, but it also damages the underground aquifer. What is the Pigovian Tax? Use a figure to explain. Can it be used to correct for the externality? Derive the Pigovian tax and characterize the social optimum solution. Can a standard achieve the social optimum? What about a quota? Explain using a figure. Explain and show step-by-step!Assume a market for fertilizers, and let D denote the demand of fertilizers while S their supply. The inverse demand is p = 10 - q, and the supply is MC = q. The marginal damage created by runoff water being exposed to fertilizers is MEC = q/2 The use of fertilizers is creating an externality and the government wishes to intervene in the market. Use a figure to depict the competitive outcome. Derive the competitive equilibrium outcome. Use a second figure to explain the negative externality attributed to the use of fertilizers. The use of fertilizers improves yield, but it also damages the underground aquifer. What is the Pigovian Tax? Use a figure to explain. Can it be used to correct for the externality? Derive the Pigovian tax and characterize the social optimum solution. Can a standard achieve the social optimum? What about a quota? Explain using a figure. Explain and show step-by-step for last two questions please!a. Suppose a market is introduced for the externality Eveline causes on Victor. Let us denote by px the price of this externality. Suppose "property rights" are assigned such that Victor has the right not to experience the smell of cooked cabbage. The competitive equilibrium price ratios pm and Px are equal to? b. Derive the market allocation corresponding to the new competitive equilibrium of the economy formed by Eveline and Victor (ce, me) and (cv,mv). c. Is the new competitive equilibrium Pareto efficient?
- Define externality and please make sure to include three (3) key characteristics of the effects of an externality in your answer.1) a. what is the profit maximizing quantity of the good for The industry (Q1) when it is not forced to consider the externality? The profit-maximizing quanity for the industry (Q1) is: b. what is the profit maximizing quantity for the representative individual firm (q1)?P = 500 - 4Q and the (inverse ) 2. Consider the market for automobiles Let the (inverse ) market demand function be market supply function be P = - 100 + 2Q Plot the demand and supply functions and show the market equilibrium Find the equilibrium output and price in this market and show it on your graph Consumption of automobiles (driving behavior of buyers) generate negative external effects on others in society because emissions associated with driving and any increase in the probability of automobile accidents (let us assume more cars on the road lead to a higher probability of automobile accidents). Assume that the marginal external loss/damage to society from the consumption of a car is worth $60. Using the information given above, construct the marginal social benefit and marginal social cost curves as necessary d. Now calculate the efficient number of cars that should be sold and bought in the market e. Identify the net efficiency loss to society from the market level of cars…
- 61) The Coase Theorem points out that externality problems can be eliminated if the number of parties involved is small and if property rights A) are granted solely to consumers. B) are granted solely to producers. C) are eliminated. D) are granted to either consumers or producers and transactions costs are low. 62) The Coase Theorem says that which of the following is necessary to lead to an efficient use of resources? A) presence of transaction costs B) existence of property rights C) government intervention D) All of the above answers are correct. 63) According to the Coase theorem, which of the following are necessary for the efficient levels of pollution to be achieved? I.Property rights are defined. II.Transactions costs are low. A) I only B) II only C) both I and II D) neither I nor II 64) Which condition(s) must exist for the Coase Theorem to hold? I.Property rights must exist. II.Transactions costs must be measurable. III.A small…Use the following diagram of the market for product X to answer the question below. Price Q₁ Qo Q₂ Quantity D₁ Curve S, embodies all costs (including externalities) and D, embodies all benefits (including externalities) associated with the production and consumption of X. Assuming the market equilibrium output is Q₁, we can conclude that the existence of external A) costs has resulted in an underallocation of resources to X. B) costs has resulted in an overallocation of resources to X. C) benefits has resulted in an overallocation of resources to X. D) benefits has resulted in an underallocation of resources to X.Consider a competitive market for Good Y. This good involves a negative consumption externality. i) Is this market efficient? Why? ii) Imagine that the competitive market for Good Y consolidates and becomes a monopoly. Does this make the market more, or less efficient relative to the situation above? Include a graph to make the point clearer.