Consider an economy with three consumers, each with a = 10-q. What is society's marginal benefit (MSB) for the MSB = 10-3q MSB = 30-3q MSB 10-(1/3)q = OMSB = 30-(1/3)g
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- Individuals A, B and C have the following individual demand curves: Q=7-5P Q=10-P Qc=18-3P Make a price quantity chart for each consumer. Then add a column showing the total quantity demanded for a private good. Next show the quantity price chart showing the total demand for a public good. Graph and label all 5 demand curves on the same graph (see provided graph sheet). If the marginal cost is $4 a unit how many units should be bought if the good is a private good? How many units would each individual buy? If the marginal cost is $6 a unit, to the nearest .1 how many units should be bought if the good is a public good? To the nearest S 0.01 what are the Lindahl prices each person is willing to pay? Do consumers of public goods have the same incentives to reveal their true valuations of Public goods as they do of Private goods? Why or why not?Lecture: Externality - Pigou8. All-Leather is a tanning company located on Lake Michigan in Chicago. Its total cost functionis C(QA) = 125 + 8QA + 5QA2, where QA is leather production per week in thousands of pounds.a) If leather sells for $408 per thousand pounds, how much leather will All-Leather produce?How much profit does All-leather earn?Enjoy is a beverage company located on Lake Michigan near All-Leather in Chicago. Enjoy’sproduction of beverages is negatively affected by water pollution from All-Leather’s productionof leather. Enjoy’s total cost function to produce beverages isC(QE) = 10QE +3QE2 + 3QA2where QE is Enjoy’s weekly production of beverages, in thousandsof gallons and, as above, QA is All-Leather’s weekly production of leather.b) Is this an example of a pecuniary externality or a real externality? Explain.c) What is the extra cost to Enjoy from an additional thousand tons of leather production by AllLeather (i.e., the external marginal cost of an extra unit of QA…Show the market for cigarettes in equilibrium, assuming that there are no laws banning smoking in public. Label the equilibrium private market price and quantity as Pm and Qm. Add whatever is needed to the model to show the impact of the negative externality from second-hand smoking. (Hint: In this case it is the consumers, not the sellers, who are creating the negative externality.) Label the social optimal output and price as Pe and Qe. On the graph, shade in the deadweight loss at the market output.
- Suppose that a vaccine is developed for a highly contagious strain of flu. The likelihood that anyone will get this flu decreases as more people receive the vaccine. One of the demand curves below represents the private demand for the vaccine and the other represents the social demand for the vaccine. Price (5/dose) 110T 100 90 80 70 60 50 40 30 20 10 0 0 25 50 75 100 125 150 175 200 225 250 Quantity (doses/day) The total social benefit of 75 doses is: D1 02Plants A and B emit 12 tons and 6 tons of carbon dioxide (CO2), respectively. MAC(marginal abatement costs) for a = 12 - Ea, MACb=12-2Eb MD(marginal damage) = 1/3*E (E indicates CO2 emission) What is the social optimum for power plants A and B to reduce CO2 by some amount, and how much reduction cost each power plant bears?There are two people. Each person's demand for a public good is P = 20 - Q. The marginal cost of providing the public good is given by MC2 = $12 (MC is not $24). The above graph summarizes the relevant information. The total demand for the two workers shown above is the vertical sum of the demand curve for each worker.(a) What is the socially efficient quantity of the public good?(b) How much will each person have to pay per unit to provide the socially efficient quantity?(c) What is the consumer surplus for each person based on the quantity determined in (a) and the price determined in (b)?(d) Given that this is a public good, if either one of the two people does not pay the price you have stated in (b), can they be prevented from consuming the good?
- Given the following information (which is identical to the scenario in the video), Demand: Q = 10,000-2P • Supply: Q = -500 + 5P Marginal External Benefit: MEB = 0.1Q %3D (a) Graphically show the private market quantity and the socially optimal quantity. Fully label the graph and draw all relevant curves. (b) Now suppose that the government implements a $400 subsidy per tree planted. Draw the "PMB + subsidy" curve and calculate the quantity attained with this $400 subsidy. (c) Is this $400 subsidy a "Pigouvian" subsidy? Why or why not?Consider the market for plastic straws, in which production causes pollution (air pollution, waste pollution). Quantity demanded is given by Qd=6200-4*P Marginal Private Costs (determines individual supply costs of producers) is given by Qs=2*MPC-1000. Marginal Social Costs (MPC plus the costs of externalities) is given by Qs=2*MPC-1300. Plot these 3 curves on a graph with 6 points at Q=1000, 1100, 1200, 1300, 1400, 1500 What is the deadweight loss if only free market forces are at play (i.e. externalities are not considered by the producers)?There are 2 people in a community, A and B. The function of the demand for public goods from each of these individuals is: PA = 100 - G P3 = 140 - G where P is the maximum price level that each individual is willing to pay for each unit of public good G. Marginal costs for the production of each unit of public good are constant 120 Tokens. a. Illustrate in a graphical analysis the function of demand and supply (supply) of this public good. What is the efficient provision of public goods G? Describe the prerequisites for the efficient condition (supply) of public goods. b. Determine the Lindahl price for individual A and individual B. c. If later, individual C joins the community, with PC = 30 - G. Will Individual C contribute to the provision of the public goods? Explain.
- Price and Cost B. (A E. Q2 Q1 Quantity Analyzing the prior graph which type of externality is this? Which line is the private and which is the public? What quantity does the private market produce, which quantity does the public want? Now give three (3) examples of this type of externality.Define public goodsSuppose demand for a public park (assume it is a pure public good) for two groups of consumers (A and B) is given by:QA = 4 - 0.5PQB = 7 - Pwhere Q is the number of acres each group would like to see incorporated into the park. If the marginal cost to provide the park is a constant $3/acre, what is the socially efficient number of acres for the park?