Microeconomics (13th Edition)
13th Edition
ISBN: 9780134744476
Author: Michael Parkin
Publisher: PEARSON
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Chapter 16, Problem 5SPA
To determine
A private firm’s provided quantity, efficient quantity, and quantity provided by the election winner.
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Suppose that a vaccine is developed for a highly contagious strain of flu. The likelihood that anyone will get this flu decreases as more people receive
the vaccine. One of the demand curves below represents the private demand for the vaccine and the other represents the social demand for the
vaccine.
Price (5/dose)
110T
100
90
80
70
60
50
40
30
20
10
0
0 25 50 75 100 125 150 175 200 225 250
Quantity (doses/day)
The total social benefit of 75 doses is:
D1
02
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?
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ILOS: A2, C2
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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?
Chapter 16 Solutions
Microeconomics (13th Edition)
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 - Prob. 10SPACh. 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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