ECON MICRO
5th Edition
ISBN: 9781337000536
Author: William A. McEachern
Publisher: Cengage Learning
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Question
Chapter 3, Problem 3.12P
To determine
The reasons as to why markets should not determine the amount of goods produced that imposes a negative externality
Introduction:
Negative Externality: It is a
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3.
A local drama company proposes a new neighbourhood theatre in Vancouver. Before
approving the building permit, the city planner completes a study of the theatre's impact
on the surrounding community.
a. One finding of the study is that theatres 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? (2
marks)
b. Graph the market for theatre tickets, labelling the demand curve, the social-
value curve, the supply curve, the social-cost curve, the market equilibrium
level of output, and the efficient level of output. Also show the per-unit amount
of the externality. (4 marks)
c. On 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
theatre members coming and going at various hours. The planner has found that
the increased foot traffic…
(MCQ)
If there are no externalities a competitive market achieves economic efficiency. If there is anegative externality, economic efficiency will not be achieved because
a. too much of the good will be produced.
b.a deadweight loss will occur that is equal to the area under the demand curve for the good.
c.too little of the good will be produced.
d.economic surplus is maximized
D Question 7 Noise generated by an airport best illustrates.
market power.
overproduction of private goods.
an externality.
an inequity.
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