Essentials of Economics (MindTap Course List)
8th Edition
ISBN: 9781337091992
Author: N. Gregory Mankiw
Publisher: Cengage Learning
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Chapter 11, Problem 2PA
Subpart (a):
To determine
Common resources.
Subpart (b):
To determine
Common resources.
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a. According to Economist Vilfredo Pareto, a condition of ‘Pareto Optimality’, which refers to efficient allocation of natural resources such that no reallocation of resources of such could benefit any person without lowering the net benefits for at least one other person, cannot be attained in the presence of Externalities. Explain how externalities affect the condition of Pareto Optimality using suitable examples of each type of the externalities.
Explain the concept of an externality. Explain and show graphically how externalities lead to market failure and an inefficient allocation of resources.
To produce honey, beekeepers place hives of bees in the fields of farmers. As bees gather nectar, they pollinate the crops
in the fields, increasing the yields of these fields at no additional cost to the farmer.
a) Is this an externality in consumption or production?
b) Is this a negative or positive externality?
c) If this externality is not internalized, would beekeepers produce more or less bees than socially optimal? Why?
d) Suggest a market-based solution that would internalize the externality. In your answer, give reference to the social cost
and social value curves.
e) What might be a reasonable private solution to this externality and how might the solution be reached?
Chapter 11 Solutions
Essentials of Economics (MindTap Course List)
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- If a positive demand-side externality (also called a positive externality in consumption) occurs, then: a. The market provides the efficient allocation. b. The market under-provides the product, meaning the market allocation is less than the efficient allocation. c. The market does not provided the product, hence market failure occurs. d. The market over-provides the product, meaning the market allocation is more than the efficient allocation.arrow_forwardMatch each of the following characteristics or scenarios with either the term negative externality or the term positive externality. a. Overallocation of resources. b. Tammy installs a very nice front garden, raising the property values of all the other houses on her block. c. Market demand curves are too far to the left (too low). d. Underallocation of resources. e. Water pollution from a factory forces neighbors to buy water purifiersarrow_forwardNegative externalities and fast food Task 6b Explain the concept of negative externalities Point value In no more than 200 words, briefly explain the concept of negative externalities. 4 points Does eating too much fast food generate a negative externality? Why or why not? Format - Evidence of negative externalities | Reflection (written) Point Answer box value Negative externalities and fast food Task 6c | Negative externality: Consuming too much fast food Create two demand and supply diagrams to demonstrate the following: In your first diagram show the negative externality of consuming too much fast food. Carefully label your diagram and identify the deadweight loss. In your second diagram add a tax to this market. Highlight what happens to consumption. In a dot point below your last diagram briefly tell us whether the second diagram has a deadweight loss. Point value 8 points Format - Evidence of negative externality of consuming too much fast food | Reflection (written) Answer box…arrow_forward
- 24. When a good or service is Non-Rival and Non-Excludable, it is is classified as a a) Private Good b) Externality e) Club Good d) Public Good 25. An economist reasons as follows: "Time spent at home taking care of a child is time not spent earning income, so the opportunity cost of having a child includes the potential wage earnings women give up by parenting." Assuming we agreed with this, and that women enjoy children (and/or invest in them to be taken care of in retirement), we would conclude that, all else equal: b) a) in societies were wages for women's work is low, women are likely to choose to have more babies. in societies were wages for women's work is low, women are likely to choose to have fewer babies. women have too many children in poor countries economists cannot make any predictions about the determinants of population growth. c) d) 26. Digital music files can be easily and almost withor duplicated and transmitted to thousands of users who download them via free…arrow_forward1.a. Suppose there is an external cost, or negative externality, associated with production of a certain good. What's wrong with letting the market determine how much of this good will be produced? List at leadsr one example of negative externalty. 1.b. The owner of a small pizzeria is deciding whether to increase the radius of delivery area by one mile. What considerations must be taken into account if such a decision is to increase profitability?arrow_forwardUse 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.arrow_forward
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