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- Suppose there are two residents in a neighborhood, and you know both of their demand curves for a public good. What would you have to do in order to figure out what the social demand curve? a-Subtract the demand of the person with the higher valuation of the public good from the demand of the person with the lower valuation of the public good b-Add their demand curves together c-Multiply the two demand curves together d-Subtract the demand of the person with the lower valuation of the public good from the demand of the person with the higher valuation of the public goodAn externality arises when a firm or person engages in an activity that affects the wellbeing of a third party, yet neither pays nor receives any compensation for that effect. If the impact on the third party is beneficial, it is called a externality. The following graph shows the demand and supply curves for a good with this type of externality. The dashed drop lines on the graph reflect the market equilibrium price and quantity for this good. Adjust one or both of the curves to reflect the presence of the externality. If the social cost of producing the good is not equal to the private cost, then you should drag the supply curve to reflect the social costs of producing the good; similarly, if the social value of producing the good is not equal to the private value, then you should drag the demand curve to reflect the social value of consuming the good. (?) PRICE (Dollars per unit) QUANTITY (Units) Supply Demand ¦ þ Demand SupplyAn externality arises when a firm or person engages in an activity that affects the wellbeing of a third party, yet neither pays nor receives any compensation for that effect. If the impact on the third party is adverse, it is called a externality. The following graph shows the demand and supply curves for a good with this type of externality. The dashed drop lines on the graph reflect the market equilibrium price and quantity for this good. Adjust one or both of the curves to refiect the presence of the externality. If the social cost of producing the good is not equal to the private cost, then you should drag the supply curve to reflect the social costs of producing the good; similarly, if the social value of producing the good is not equal to the private value, then you should drag the demand curve to reflect the social value of consuming the good. -O- Supply Demand Supply Demand QUANTITY (Unts) With this type of externality, in the absence of government intervention, the market…
- Use the graph attached below as a starting point (either download it or print it out). Add curves, labels, etc. to this graph in order to show the following: 1. Show that this good has a $4/unit negative externality (external cost), such as pollution. 2. Shade the area that represents the Deadweight Loss (lost gains from trade) caused by the external cost. 3. Show a tax or subsidy wedge (whichever you think is appropriate) that will solve the problem of the external cost. 4. Show the socially optimal level of production that the Pigouvian tax or subsidy above will help the market to achieve. You may use software or pencil and paper to complete this graph. Upload it here when you are done.Evaluate the following statement: "When it comes to public goods, individuals do not reveal their true preferences because it is not in their self-interest to do so."Scenario 3 Suppose there are one hundred residents in a neighborhood, and each resident has an identical demand for a public good. The demand for each resident is given by P = 2 - .01Q. If your answer is not a whole number, please make sure to round to the nearest hundredth. Refer to Scenario 3. Find the social demand curve for the public good in this neighborhood. What is the slope of the social demand curve?
- The demand curve for a public park for two consumers who represent society is given by: P = 150 - QD1, P = 250 - QD2 Graph the two demand curves and show the marginal social benefit curve for this public park. If the marginal cost of providing the park was €240, what would the optimum provision of this park be? Explain why any quantity above or below this amount would represent a less than efficient allocation.Bill’s demand for hamburgers (a private good) is Q = 21 − 6P and Ted’s demand is Q = 6 − 3P. Write down an equation for the social marginal benefit of the consumption of ham- burger consumption. Now suppose that hamburgers are a public good. Write down an equation for the social marginal benefit of hamburger consumption.(a) Alpha, Beta and Gamma are consumers of a public good. The marginal benefit ($) of each unit of the public good is given by the following table. Public Good Alpha Beta Gamma 1st unit 8 10 12 2nd unit 4 8 3 3rd unit 2 5 0 4th unit 1 5 0 Suppose each unit of the public good costs $15. How many units of the public good would be optimal? Explain. (b) If the public good becomes a private good and the price drops to $8. The marginal benefits are the same as that given in (a). How many units of the private good would be purchased? Explain.
- Externalities - Definition and examples An externality arises when a firm or person engages in an activity that affects the wellbeing of a third party, yet neither pays nor receives any compensation for that effect. If the impact on the third party is adverse, it is called a ___________ externality. The following graph shows the demand and supply curves for a good with this type of externality. The dashed drop lines on the graph reflect the market equilibrium price and quantity for this good.With the help of appropriate diagrams, explain how a tax can be used to reduce the consumption of a harmful product such as cigarettes.Consider Good A. There are NO externalities associated with Good A. a.) Draw a ( general- you don’t need any specific numbers) graph that shows the deadweight loss that would result if a tax is placed on Good A. b.) Suppose that, after the tax is placed on Good A, the quantity consumed ( by all customers) is equal to 90,000 units of Good A. Is the efficient level of output in the market for Good A greater than 90,000 , less than 90,000 , or equal to 90,000 ( just circle your answer ; you don’t have to explain)? (7) The efficient level is greater than 90,000 The efficient level is less than 90,000 The efficient level is equal to 90,000
