The figure to the right illustrates the supply of fireworks and the demand for fireworks by David (D₁) and Lisa (D₂). Assume fireworks are a public good (and that David and Lisa constitute the entire market for fireworks). What is the optimal provision of this public good? The optimal quantity of this public good for David and Lisa is fireworks. (Enter a your response as a whole number.) D Price ($ per firework) 12- 11- 10- 9- 8- 7- 3- 2- 1- D₁ D₂ Fireworks S 9 10 11 12

The figure to the right illustrates the supply of fireworks and the demand for fireworks by David (D₁) and Lisa (D₂). Assume fireworks are a public good (and that David and Lisa constitute the entire market for fireworks). What is the optimal provision of this public good? The optimal quantity of this public good for David and Lisa is fireworks. (Enter a your response as a whole number.) D Price ($ per firework) 12- 11- 10- 9- 8- 7- 3- 2- 1- D₁ D₂ Fireworks S 9 10 11 12

ECON MICRO

5th Edition

ISBN:9781337000536

Author:William A. McEachern

Publisher:William A. McEachern

Chapter17: Externalities And The Environment

Section: Chapter Questions

Problem 2.7P

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3°F 2. Efficiency in the presence of externalities Air horns impose many external costs on society: the risk of being deafened, the annoyance of being awakened in the middle of the night, and so on. Therefore, the market equilibrium quantity of air horns is not equal to the socially optimal quantity. The following graph shows the demand for air horns (their private value), the supply of air horns (the private cost of producing them), and the social cost of air horns, including both the private cost and external costs. Use the black point (plus symbol) to indicate the market equilibrium quantity. Next, use the purple point (diamond symbol) to indicate the socially optimal quantity. Social Cost Market Equilibrium Socially Optimal Level oudy PRICE OF AIR HORNS Supply (Private Cost) D
The figure to the right illustrates the supply of fireworks and the demand for fireworks by David (D₁) and Lisa (D₂). Assume fireworks are a public good (and that David and Lisa constitute the entire market for fireworks). What is the optimal provision of this public good? The optimal quantity of this public good for David and Lisa is fireworks. (Enter a your response as a whole number.) D Price ($ per firework) 12- 11- 10- 9- 8- 16 3- 2+ 1- D₂ D₁ 0+ 1 3 5 6 7 Fireworks 8 S 9 10 11
4. Efficiency in the presence of externalities Cars impose many external costs on society: carbon dioxide emissions that contribute to air pollution, congestion on roadways, and so on. Therefore, the market quantity of cars is not equal to the efficient quantity. The following graph shows the private demand for cars, the private supply of cars, and the social supply of cars, which incorporates both private costs and external costs. Use the black point (plus symbol) to indicate the market quantity. Next, use the purple point (diamond symbol) to indicate the socially optimum quantity. Note: Drop lines will extend to both axes automatically. DERIVATE QUARKET O5OCIAL SSOCIAL SPRVATE QUANTITY OF CARS From society's standpoint, the market is producing cars. This is an example of of resources. PRICE OF CARS
9. Efficiency in the presence of externalities Parks confer many external benefits on society: open space, trees that reduce pollution, and so on. Therefore, the market equilibrium quantity of parks is not equal to the socially optimal quantity. The following graph shows the demand for parks (their private value), the supply of parks (the private cost of producing them), and the social value of parks, including both the private value and external benefits. Use the black point (plus symbol) to indicate the market equilibrium quantity. Next, use the purple point (diamond symbol) to indicate the socially optimal quantity. Supply (Private Cost) Market Equilibrium Socially Optimal Level Social Value Demand (Private Value) QUANTITY OF PARKS PRICE OF PARKS
3. Now reconsider the issue of soybeans from the perspective of Chinese consumers. Assume you are a Chinese consumer who drinks soymilk each day. Demonstrate using a graph how your consumption of soymilk differs from the socially optimal level. Is the price you pay for soymilk in current market conditions the correct amount, too high, or too low? Why? Ensure that you label your graph correctly (all curves, axes, price and quantities labeled). Show the deadweight loss of soymilk consumption, and what price should be charged for soymilk to move the amount of soymilk you drink to the optimal level.
2. Efficiency in the presence of externalities Fireworks impose many external costs on society: noise pollution, pets and children that become frightened, accidents leading to property damage and bodily harm, and so on. Therefore, the market equilibrium quantity of fireworks does not equal the socially optimal quantity. The following graph plots the demand for fireworks (their private value), the supply of fireworks (the private cost of producing them), and the social cost of fireworks, including both the private cost and external costs. Use the black point (plus symbol) to indicate the market equilibrium quantity. Next, use the purple point (diamond symbol) to indicate the socially optimal quantity. PRICE OF FIREWORKS Social Cost Supply (Private Cost) Demand (Private Value) QUANTITY OF FIREWORKS + Market Equilibrium Socially Optimal Level
5.. "Since a public good is enjoyed by all members of society, willingness to pay for the good will not diminish as the amount produced increases." Evaluate and use an example to support your answer. This statement is (correct incorrect). Public goods face (increasing, constant, diminishing ) returns like any other good. Consider the number of highways in a town, for example. Citizens of a town are very willing to pay for the first highway, as it produces large gains to the town. Successive highways produce (more and more, less and less ) willingness to pay because the citizens face lower and lower gains from the increased number of highways. In a town of, say 20,000, 15 highways (would, would not) produce much more benefit than just 2 or 3 highways because of ( increasing, constant, diminishing ) returns.
19. This next question will require you to draw on what you have learned about supply and demand and taxes. A study finds that leaf blowers make too much noise; therefore it is considered a externality, so the government imposes a $10 tax on the sale of every unit to correct for the social cost of the noise pollution. The tax completely internalizes the externality. Before the corrective tax, Leaves are Us Manufacturing regularly sold blowers for $100 and market quantity is 300. Draw the supply and demand curve for leaf blowers. Label the axes, the curves, market price, market quantity, and equilibrium. Which curve represents private or internal costs? represents external and private costs? This is also known as What is the private market price? What is the private market quantity? Which curve costs. After the tax is in place, the consumer price of leaf blowers rises to $105. With this change in price, the number of leaf blowers will (decrease/increase). Why will this happen?
34. The graph below showing the costs and benefits of producing and consuming gasoline. The dark line labeled Sp shows the Supply curve based on producers' costs, and the dark line labeled Dc shows the Demand curve based on the consumers' benefits. (Note, this is the same graph as in #33). Which of the following shows the excess quantity produced by a free market as compared to the social optimum quantity? P p2 ро pl 0 q1 q0 q2 A Is the excess quantity: (A) the distance from q1 to q0; (B) the distance from q1 to q2; (C) the distance from q0 to q2; (D) the distance from p1 to p2; Please put your answer (A), (B), (C), or (D) in the text box. E Sp B Dc с
4. Consider the open-access equilibrium and the economically optimal equilibrium. How are each determined? Which one is more likely to produce a "tragedy of the commons"?
(Figure: Softella) Refer to the figure. The figure shows a market for medicated tissues. Assume that the only use for these tissues is to wipe and clean one's hands, thus preventing germs from spreading to other people. What is the dollar amount of the external benefit (per box) that is created by the use of this product? Supply $16 12 Social value Demand Quantity of boxes of softella medicated 500 700 tissues Select one: a. $16 b. $12 c. $24 d. $8
7. Correcting for negative externalities - Taxes versus tradablepermits Nuclear facilities emit radioactive waste 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 electricity 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 radioactive waste). 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. you enter a value in a white field, the graph and any corresponding amounts in each grey field will change accordingly. Note: Once PRICE(Dollars perton) 23 8 70 49 42 35 21 14 7 0 Demand 0 40 80 120 160 200 240 280 320 360 400 QUANTITY (Millions of tons) Graph Input Tool Daily Demand…