Econ Micro (book Only)
6th Edition
ISBN: 9781337408066
Author: William A. McEachern
Publisher: Cengage Learning
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Textbook Question
Chapter 17, Problem 3P
(Negative Externalities) Suppose you wish to reduce a negative externality by imposing a tax on the activity that creates that externality. When the amount of the externality produced per unit of output increases as output increases, the correct tax can be determined by using a demand-supply diagram; show this. Assume that the marginal private cost curve slopes upward.
Negative Externalities: The Market for Electricity in the Midwest:
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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?
(Table: The Marginal Social Cost of Batteries) The accompanying table lists several
price (P) and quantity (QS) values along the market supply curve for batteries.
Because batteries generate toxic wastes, there is an external cost associated with
thẻir production. The marginal external cost is estimated to be $10. The marginal
social cost would then be indicated by the values in the column labeled:
Table: The Marginal Social Cost of Batteries
Quantity supplied
(Qs)
5.00
Price (P)
MSC1
MSC2
MSC3
MSC4
$20
$2.00
$10
$30
$20
26
7.00
2.60
16
36
26
28
7.67
2.80
18
38
28
32
9.00
3.20
22
42
32
36
10.33
3.60
26
46
36
38
11.00
3.80
28
48
38
OA. MSC1.
B. MSC2.
O C. MSC3.
OD. MSC4.
(Figure: Nail Polish Externalities) In the figure, Sp (MPC) represents the private supply curve of a particular type of nail polish, whose manufacture is associated with the release of toxic chemicals into the atmosphere. SS (MSC) includes the costs of that toxicity borne by others. What area represents the total externality cost of this nail polish?
a) abdc
b) abef
c) defc
d) the total externality cost is unknown.
(the answer is NOT b)
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- Quèstion 26 The demand curve for gasoline slopes downward and the supply curve for gasoline slopes upward. The production of the 400th gallon of gasoline entails the following: • a private cost of $2.8; • a social cost of $3.1: • a value to consumers of $3.2. The production of the 400th gallon of gasoline entails an external cost of $0.1 O external cost of $0.3 external benefit of $0.1 O external benefit of $0.4arrow_forward3. The effect of negative externalities on the optimal quantity of consumption Consider the market for electric cars. Suppose that a electric car manufacturing facility dumps sludge into a nearby river, creating a negative externality for those living downstream from the facility. Producing additional electric cars imposes a constant per-unit external cost of $600. The following graph shows the demand (private value) curve and the supply (private cost) curve for electric cars. Use the purple points (diamond symbol) to plot the social cost curve when the external cost is $600 per unit. PRICE (Dollars per unit of electric cars) 2000 1800 1600 1400 1200 1000 800 600 400 200 0 0 + 1 O □ ☐ O 2 3 4 5 QUANTITY (Units of electric cars) The market equilibrium quantity is ☐ Supply (Private Cost) 6 Demand (Private Value) 7 Social Cost (?) units of electric cars, but the socially optimal quantity of electric car production is To create an incentive for the firm to produce the socially optimal…arrow_forward5) Suppose: i) the price of gasoline is $2 per gallon ii) current consumption is 400 (million) gallons per day iii) the elasticity of demand is -0.8 iv) retail provision of gasoline may be approximated as a constant cost industry v) there is an external cost of $0.5 per gallon of gas. Calculate deadweight loss associated with the externality. Draw a figure to illustrate.arrow_forward
- 3. The effect of negative externalities on the optimal quantity of consumption Consider the market for electric cars. Suppose that a electric car manufacturing facility dumps sludge into a nearby river, creating a negative externality for those living downstream from the facility. Producing additional electric cars imposes a constant per-unit external cost of $210. The following graph shows the demand (private value) curve and the supply (private cost) curve for electric cars. Use the purple points (diamond symbol) to plot the social cost curve when the external cost is $210 per unitarrow_forward2. A market has the inverse demand curve P ^ D * (q) = 300 - 1/2 * q and an inverse supply curve of P ^ D * (q) = 5/2 * q but a total negative externality of E(q) = - 60q (a) Find the competitive equilibrium in this market. (b) Find the marginal social value curve (the sum of the marginal externalities and inverse demand). (c) Find the surplus-maximizing quantity. (d) Calculate the deadweight loss of the competitive equilibrium. (e) Find the optimal per-unit tax for this market. 3. Repeat parts (c) through (f) assuming there is actually a positive externality E(q) = 60qarrow_forward
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