Provide two examples of each of the following:   • Positive Production Externalities   • Negative Production ExternalitieS   • Positive Consumption Externalities   • Negative Consumption Externalities

3. The effect of negative externalities on the optimal quantity of consumption Consider the market for pharmaceuticals. Suppose that a pharmaceutical factory dumps toxic waste into a nearby river, creating a negative externality for those living downstream from the factory. Producing additional pharmaceuticals imposes a constant per-unit external cost of $240. The following graph shows the demand (private value) curve and the supply (private cost) curve for pharmaceuticals. Use the purple points (diamond symbol) to plot the social cost curve when the external cost is $240 per unit. PRICE (Dollars per unit of pharmaceuticals) 800 720 640 560 480 400 320 240 160 80 0 0 1 ☐ 0 O ¶ 2 3 5 QUANTITY (Units of pharmaceuticals) 4 ■ Supply (Private Cost) 6 Demand (Private Value) 7 Social Cost ?

Attempts Average / 2 8. Property rights and market failures Bakers are much likely to supply pastries to the market if property rights are not enforced. In the presence of market failures, public policy can improve economic efficiency. Classify the source of market failure in each case listed. Market Market Failure Power Externality A manufacturing plant dumps chemical waste into a nearby river, poisoning the water supply for a small town downstream. There is only one car dealership in a small town, giving the dealership the ability to influence the price of cars.

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?

For each of the goods, identify the characteristics that describe each good. Note that each good will be described with two characteristics. Rivalrous is also referred to as rival in consumption. Consider only the immediate benefits and costs, not any externalities. National Defense Pay- Per- View Cable Television A Hot Pocket Sandwich Private Classroom Education Pajamas A unicycle             Excludable Nonrivalrous Nonexcludable Rivalrous

A certain economy which produces two goods and has the technology matrix = (Recall that the entry  of  is the amount of good  required to produce one unit of good ) Find the amount of good  in the production schedule that meets an external demand for 120 units of good  and 100 units of good

Assume that to balance the benefits of providing electricity with its pollution costs, A. Treehugger recommends that the government imposes a tax $0.04 for every kilowatt hour (kWh) of electricity sold.  If they do, how much of this tax is actually paid by the customer (consumer’s burden) and how much is paid by the firm (producer’s burden)?

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need part E answered

Describe and explain a case in which the market does not allocate an efficient amount of resources.