Macroeconomics
13th Edition
ISBN: 9780134735696
Author: PARKIN, Michael
Publisher: Pearson,
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Question
Chapter 16, Problem 14APA
(a)
To determine
The classification of a goodas a private good or a public good.
(b)
To determine
Marginal social benefit.
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Explain the efficiency condition for Public Goods. Also draw the graph and interpret the graph.
. Both Wisconsin and Illinois border Lake Michigan. The lake is becoming polluted and both states are deciding whether or not to clean it. If Wisconsin decides to clean the lake it will cost 1200 and generate social benefits of 1500 – however, Wisconsin will receive only 1100 of those social benefits while neighbor Illinois will receive the other 400. If Illinois cleans the lake, it will cost them 700 and generate social benefits of 900 – however, Illinois will receive only 600 of those benefits, Wisconsin will receive the remaining 300. If a state does not clean the lake, it experiences a cost of $0. If both states clean the lake, the payoffs will be
A. Wisconsin gains 100, Illinois gains 200B. Wisconsin gains 200, Illinois gains 300C. Wisconsin gains 200, Illinois loses 100D. Wisconsin gains 100, Illinois loses 100
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
Chapter 16 Solutions
Macroeconomics
Ch. 16.1 - Prob. 1RQCh. 16.1 - Prob. 2RQCh. 16.1 - Prob. 3RQCh. 16.1 - Prob. 4RQCh. 16.2 - Prob. 1RQCh. 16.2 - Prob. 2RQCh. 16.2 - Prob. 3RQCh. 16.2 - Prob. 4RQCh. 16.3 - Prob. 1RQCh. 16.3 - Prob. 2RQ
Ch. 16.3 - Prob. 3RQCh. 16.3 - Prob. 4RQCh. 16.3 - Prob. 5RQCh. 16 - Prob. 1SPACh. 16 - Prob. 2SPACh. 16 - Prob. 3SPACh. 16 - Prob. 4SPACh. 16 - Prob. 5SPACh. 16 - Prob. 6SPACh. 16 - Prob. 7SPACh. 16 - Prob. 8SPACh. 16 - Prob. 9SPACh. 16 - The Economics of Healthcare (Study plan 16.3) Use...Ch. 16 - Prob. 11APACh. 16 - Prob. 12APACh. 16 - Prob. 13APACh. 16 - Prob. 14APACh. 16 - Prob. 15APACh. 16 - Prob. 16APACh. 16 - Prob. 17APACh. 16 - Prob. 18APACh. 16 - Prob. 19APACh. 16 - Prob. 20APACh. 16 - Prob. 21APACh. 16 - Prob. 22APACh. 16 - Prob. 23APACh. 16 - Prob. 24APA
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Similar questions
- This graph represents the tobacco industry. IPrice 16 14 Social Cost 12 10 Private Cost 8 6 4 Demand 200 500 650 Quantity a) Without any government intervention, what is the market determined price and quantity? b) What is the price of the externality? c) What is the socially optimal price and quantity? d) What should the government do (impose a tax or provide a subsidy) to internalize this externality? What is the amount of the the corrective tax/subsidy needed to be to move the outcome from the market equilibrium to the socially-optimal outcome?arrow_forward10. A local drama company proposes a new neighborhood theater in San Francisco. Before approving the permit, the city planner completes a study of the theater's impact on the surrounding community. a. One finding of the study is that the theaters attract traffic, which adversely affects the community. The city planner estimates that the cost to the community from the extra traffic is $5 per ticket. What kind of an externality is this? Why? b. Graph the market for theater tickets, labeling the demand curve, the social-value curve, the supply curve, the social-cost curve, the market equilibrium level of output. Also show the per-unit amount of the externality. c. Upon further review, the city planner uncovers a second externality. Rehearsals for the plays tend to run until late at night, with actors, stagehands, and other theater members coming and going at various hours. The planner has found that the increased foot traffic improves the safety of the surrounding streets, an estimated…arrow_forward2. 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 PARKSarrow_forward
- 2. Efficiency in the presence of externalities Public wifi hotspots grant many external benefits on society: more equitable access to the Internet, increased educational opportunities, and so on. Therefore, the market equilibrium quantity of public wifi hotspots does not equal the socially optimal quantity. The following graph plots the demand for public win hotspots (their private value), the supply of public with hotspots (the private cost of producing them), and the social value of public wif hotspots, 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. PRICE OF PUBLIC WIFI HOTSPOTS Supply (Private Cost) Social Value Demand (Private Value) QUANTITY OF PUBLIC WIFI HOTSPOTS + Market Equilibrum . Socially Optimal Levelarrow_forwardQUESTION 6 Marco runs an organic cafe in the middle of an industrial office zone. He has a lot of customers with only 6 allocated car parking spaces for them. Often, his customers use the car parks designated for clients at Eloise's architectural studio nearby. 1. Marco's cafe does not produce any negative externalities. 2. Marco's cafe creates a negative externality for Eloise's architectural studio. 3. To be socially efficient, Marco needs to pay for more car spaces near his cafe. Which of the above statements are true: O Only 1 is true. O Only 2 is true. O Both 1 and 2 are true. O Both 2 and 3 are true. O All three are true. O O Oarrow_forward43. A city currently emits 16 million gallons (MG) of raw sewage into a lake that is beside the city. Table 12.13 shows the total costs (TC) in thousands of dollars of cleaning up the sewage to different levels, together with the total benefits (TB) of doing so. Benefits include environmental, recreational, health, and industrial benefits. TC TB 16 MG Current Current 12 MG 50 800 8 MG 150 1300 4 MG 500 1850 O MG 1200 2000 Table 12.13 a. Using the information in Table 12.13 calculate the marginal costs and marginal benefits of reducing sewage emissions for this city. b. What is the optimal level of sewage for this city? How can you tell?arrow_forward
- 2. Efficiency in the presence of externalities Public wifi hotspots grant many external benefits on society: more equitable access to the internet, increased educational opportunities, and so on. Therefore, the market equilibrium quantity of public wifi hotspots does not equal the socially optimal quantity. The following graph plots the demand for public wifi hotspots (their private value), the supply of public wifi hotspots (the private cost of producing them), and the social value of public wifi hotspots, 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. PRICE OF PUBLIC WIFI HOTSPOTS Supply (Private Cost) Social Value Demand (Private Value) QUANTITY OF PUBLIC WIFI HOTSPOTS Market Equilibrium Socially Optimal Levelarrow_forward22. Both Wisconsin and Illinois border Lake Michigan. The lake is becoming polluted and both states are deciding whether or not to clean it. If Wisconsin decides to clean the fake it will cost 1200 and generate social benefits of 1500 however, Wisconsin will receive only 1100 of those social benefits while neighbor Illinois will receive the other 400. If Illinois cleans the lake, it will cost them 700 and generate social benefits of 900 â€" however, Illinois will receive only 600 of those benefits, Wisconsin will receive the remaining 300. If a state does not clean the lake, it experiences a cost of $0. If Wisconsin does not clean the lake and Michigan does then the payoffs will bearrow_forwardRefer to Figure. The graph represents a market in which 24 22 22 Price 18 16 81 Social cost (private cost and external cost) Supply (private cost) Demand (private valne) 120 160 Quantity a. Othere is no externality. b. Othere is a positive externality. c. Othere is a negative externality. d. The answer cannot be determined from inspection of the graph.arrow_forward
- 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 Levelarrow_forwardD. Consider a ten-mile expressway. During rush-hour the equilibrium traffic is 2000 cars. The average private cost of the trip is $5 at the equilibrium traffic level. The marginal social cost of the trip is $9 at the equilibrium traffic level. The efficient traffic level is 1500 cars. The average private cost of the trip is $4 at the efficient traffic level. The marginal social cost of the trip is $7 at the efficient traffic level. a. Which traffic volume has a higher average trip speed? Why? 3 b. What is the externality cost per car at the equilibrium traffic level? What is the externality cost per car at the efficient traffic level? Explain. c. What is the level of the deadweight loss on this highway when it is in equilibrium? d. What is the efficient congestion toll on this highway? e. If the average fixed cost for expanding the highway is $2, should the state expand the highway? Explain.arrow_forward2. Efficiency in the presence of externalities Trucks impose many external costs on society: heavy air and noise pollution, traffic safety issues and road congestion, and so on. Therefore, the market equilibrium quantity of diesel trucks does not equal the socially optimal quantity. The following graph plots the demand for diesel trucks (their private value), the supply of diesel trucks (the private cost of producing them), and the social cost of diesel trucks, 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 DIESEL TRUCKS Social Cost Supply (Private Cost) Demand (Private Value) QUANTITY OF DIESEL TRUCKS + Market Equilibrium ■ Socially Optimal Level ?arrow_forward
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