ENGR.ECONOMIC ANALYSIS
14th Edition
ISBN: 9780190931919
Author: NEWNAN
Publisher: Oxford University Press
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Define externalities. Also give an example of a negative externality
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# Sometimes, some third person experience the effects of activities which is taking place between two different people. These effects can be both positive and negative.
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- Power stations emit sulfur dioxide as a waste product. This generates a cost to society that is not paid for by the firm; therefore, pollution is a negative externality of power production. Suppose the U.S. government wants to correct this market failure by getting firms to internalize the cost of pollution. To do this, the government can charge firms for pollution rights (the right to emit a given quantity of sulfur dioxide). The following graph shows the daily demand for pollution rights. Use the graph input tool to help you answer the following questions. You will not be graded on any changes you make to this graph. Note: Once you enter a value in a white field, the graph and any corresponding amounts in each grey field will change accordingly. Graph Input Tool (? Daily Demand for Pollution Rights 70 I Price (Dollars per ton) 63 7 56 Quantity Demanded 270 49 (Millions of tons) 42 35 28 21 Demand 14 7 90 120 150 180 210 240 270 300 QUANTITY (Millions of tons) 30 60 PRICE (Dollars per…arrow_forwardQuestion 3 Professor Paudel shows the graph for the case of negative externalities in the class. He wants the class to think about positive externalities as well. This got him thinking a lot about potential market failure due to positive production externality in the oil exploration market. Specifically, in his research, he found that expenditures on oil exploration by any company can have a positive externality because they offer more profitable opportunities for other companies. Professor Paudel wants you to enlighten him on the following issues: a) Graphically show private and social marginal cost functions and the demand curve. b) Under positive externalities as mentioned above, is the social marginal cost below than the private marginal cost? Explain and support your answers with the help of a clearly labeled graph. c) Under positive externalities as mentioned above, what's the relationship between social optimum quantity and the competitive market equilibrium quantity? Is there…arrow_forwardUse a supply and demand graph to show a good which should be illegal owing to it's negative externality.arrow_forward
- A local school administrator observes an increase in the number of flu cases in the public schools over the last two years. She is concerned that some families cannot afford flu vaccine and are therefore not having children vaccinated. She is also concerned that the failure to vaccinate some children is putting other children at risk, so she proposes that the state subsidize vaccines to increase coverage rates. a. Determine whether the failure to vaccinate some children is an external benefit or an external cost. If an external cost is present, move point A and point B to show the marginal social cost curve. If an external benefit is present, move point A and point B to show the marginal social benefit curve. Place point C at the equilibrium outcome. Place point D at the socially optimal outcome. Flu vaccines A B D Supply (marginal private cost) Pricearrow_forwardWhich of the following is an example of a positive externality? O A college student buys a new car when she graduates. O The mayor of a small town plants flowers in the city park. O Local high school teachers have pizza delivered every Friday for lunch. O An avid fisherman buys new fishing gear for his next fishing triparrow_forwardSuppose that a particular market contains a negative externality in consumption, with MSC=MPC. What should a Pigouvian tax be set to, in order to correct the externality?arrow_forward
- The following graph represents the market for high-emissions cars. Answer this question assuming that the externality is not internalised. Which quantity is socially optimal (i.e. what is the efficient quantity)? What is the deadweight loss generated by the externality?arrow_forwardGive an example of a positive externality and an example of a negative externality that exist in the economy? Share your thoughts in a paragrapharrow_forwardPower stations emit sulfur dioxide as a waste product. This generates a cost to society that is not paid for by the firm; therefore, pollution is a negative externality of power production. Suppose the U.S. government wants to correct this market failure by getting firms to internalize the cost of pollution. To do this, the government can charge firms for pollution rights (the right to emit a given quantity of sulfur dioxide). The following graph shows the daily demand for pollution rights. Use the graph input tool to help you answer the following questions. You will not be graded on any changes you make to this graph. Note: Once you enter a value in a white field, the graph and any corresponding amounts in each grey field will change accordingly. Graph Input Tool Daily Demand for Pollution Rights 81 IPrice (Dollars per ton) Quantity Demanded (Millions of tons) 72 63 315 Demand 35 70 106 140 175 210 245 0 215 190 QUANTITY (Mlons of tons Suppose the government has determined that the…arrow_forward
- If the government subsidizes vaccination against influenza to internalize the externality, should it impose the subsidy on consumers or producers of flu vaccines? How large should the subsidy be? How much less per flu vaccine would patients (i.e., consumers) pay? How much more would manufacturers (i.e., producers) of flu vaccines receive?arrow_forwardwhat is an externality? give an example of a postiive externality and an example of negative externalityarrow_forwardWhich of the following is an example of an activity generating a positive externality? O A. You buy a new car and then find $5,000 in the door panel. OB. Your next-door neighbor mows the lawn at 6 am. C. Your next-door neighbor installs a bat house and the bats eat mosquitoes. D. After Joe buys health insurance, he decides to quit smoking.arrow_forward
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