Foundations of Economics (8th Edition)
8th Edition
ISBN: 9780134486819
Author: Robin Bade, Michael Parkin
Publisher: PEARSON
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Chapter 10, Problem 7SPPA
To determine
To compute:
The subsidy per student, number of students enrolling and the cost to taxpayers if government subsidizes the colleges such that efficient number of students enroll.
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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.
Refer to the Figure. This graph represents the market for cigarettes. This market
Price
34
32
30
28
26
24
Social Cost
22
20
Private Cost
18
16
14
12
10
8
4
2
Demand
200
500 600
Quantity
has no externalities.
would benefit from a tax.
would benefit from a subsidy.
has no need for government intervention.
Define the concept of a negative externality and explain the nature of the negative externality in the fishing markets i.e. describe how the self-interested actions of a fishing company might adversely affect third parties without their consent.
Chapter 10 Solutions
Foundations of Economics (8th Edition)
Ch. 10 - Prob. 1SPPACh. 10 - Prob. 2SPPACh. 10 - Prob. 3SPPACh. 10 - Prob. 4SPPACh. 10 - Prob. 5SPPACh. 10 - Prob. 6SPPACh. 10 - Prob. 7SPPACh. 10 - Prob. 8SPPACh. 10 - Prob. 9SPPACh. 10 - Prob. 10SPPA
Ch. 10 - Prob. 1IAPACh. 10 - Prob. 2IAPACh. 10 - Prob. 3IAPACh. 10 - Use the following information to work Problems 3...Ch. 10 - Prob. 5IAPACh. 10 - Prob. 6IAPACh. 10 - Prob. 7IAPACh. 10 - Prob. 8IAPACh. 10 - Prob. 9IAPACh. 10 - Prob. 1MCQCh. 10 - Prob. 2MCQCh. 10 - Prob. 3MCQCh. 10 - Prob. 4MCQCh. 10 - Prob. 5MCQCh. 10 - Prob. 6MCQ
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- Paragraph Styles ILOS: A2, C2 Editing Voice 4. The paper industry has the demand and supply curves shown below: Price of paper Quantity demanded Quantity supplied 80 40 70 50 4 60 60 50 70 a. Suppose that this industry results in extreme externalities. What can be said about its optimal output? b. Draw the supply and demand curves for paper. Does the supply curve reflect the true social costs of producing the product? If not will a supply curve reflecting the true social costs lies above or below the supply curve you have drawn? c. What is the equilibrium price of paper? From the point of view of reflecting the true social costs, is this price the correct one, or too low or too high?arrow_forwardQUESTION 38 | To internalize a positive externality: a. the consumers of a good could receive a subsidy equal to the external benefit resulting from the production or consumption of the good. b. a producer's costs could be increased by an amount equal to the external benefit resulting from the production of the good. c. consumers of the good could pay a tax equal to the external benefit resulting from the production or consumption of the good. d. Both (a) and (c) are correct O E O O O D B A с e. none of the abovearrow_forwardWhat is the concept of a negative externality in economics? A. A benefit received by individuals who did not incur the cost B. A cost incurred by individuals who did not receive the benefit C. A situation where external parties receive equal benefits and costs D. A situation where the government intervenes in the marketarrow_forward
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