Microeconomics
21st Edition
ISBN: 9781259915727
Author: Campbell R. McConnell, Stanley L. Brue, Sean Masaki Flynn Dr.
Publisher: McGraw-Hill Education
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Chapter 4, Problem 5RQ
To determine
The provision of public and private goods.
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PRICE (Dollars per unit of electric cars)
500
450
400
350
300
250
200
150
100
50
0
H
0
O
□
1
0
■
The market equilibrium quantity is
O
3
5
QUANTITY (Units of electric cars)
☐ Supply
(Private Cost)
6
Demand
(Private Value)
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 quantity of electric cars, the government could impose a
per unit of electric cars.
units.
of 1
3. Voluntary contributions toward a public goodLarry and Raphael are considering contributing toward the creation of a public park. Each can choose whether to contribute $400 to the public park or to keep that $400 for a new suit.Since a public park is a public good, both Larry and Raphael will benefit from any contributions made by the other person. Specifically, every dollar that either one of them contributes will bring each of them $0.80 of benefit. For example, if both Larry and Raphael choose to contribute, then a total of $800 would be contributed to the public park. So, Larry and Raphael would each receive $640 of benefit from the public park, and their combined benefit would be $1,280. This is shown in the upper left cell of the first table.Since a new suit is a private good, if Larry chooses to spend $400 on a new suit, Larry would get $400 of benefit from the new suit and Raphael wouldn't receive any benefit from Larry's choice. If Larry still spends $400 on a new suit and…
Consider the town of Springfield with only three residents, Sophia, Amber, and Cedric. The three residents
are trying to determine how large, in acres, they should build the public park. The following table shows each
resident's willingness to pay for each acre of the park.
Acres
1
2
3
4
5
6
7
Sophia
0 acres
O1 acre
2 acres
10
8
6
3
1
O3 acres
0
Willingness to Pay (Dollars)
Amber
Refer to Table 11-1. Suppose the cost to build the park is $24 per acre and that the residents have agreed to
split the cost of building the park equally. If the residents vote to determine the size of park to build, basing
their decision solely on their own willingness to pay (and trying to maximize their own surplus), what is the
largest park size for which the majority of residents would vote "yes?"
24
18
14
8
6
4
2
Cedric
6
5
4
3
2
1
0
Chapter 4 Solutions
Microeconomics
Ch. 4.A - Prob. 1ADQCh. 4.A - Prob. 2ADQCh. 4.A - Prob. 3ADQCh. 4.A - Prob. 1ARQCh. 4.A - Prob. 2ARQCh. 4.A - Prob. 3ARQCh. 4.A - Prob. 1APCh. 4 - Prob. 1DQCh. 4 - Prob. 2DQCh. 4 - Prob. 3DQ
Ch. 4 - Prob. 4DQCh. 4 - Prob. 5DQCh. 4 - Prob. 6DQCh. 4 - Prob. 7DQCh. 4 - Prob. 8DQCh. 4 - Prob. 9DQCh. 4 - Prob. 1RQCh. 4 - Prob. 2RQCh. 4 - Prob. 3RQCh. 4 - Prob. 4RQCh. 4 - Prob. 5RQCh. 4 - Prob. 6RQCh. 4 - Prob. 7RQCh. 4 - Prob. 1PCh. 4 - Prob. 2PCh. 4 - Prob. 3PCh. 4 - Prob. 4PCh. 4 - Prob. 5PCh. 4 - Prob. 6PCh. 4 - Prob. 7P
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- 1. Chapter 4 Market Failure Caused by Externalities Page 94 Problem 1 Draw a supply and demand graph and identify the areas of consumer surplus and producer surplus. Given the demand curve, how will an increase in supply affect the amount of surplus shown in your diagram ? Explain. LO4.1 (Differentiate between demand-side market failures and supply-side market failures.arrow_forwardSuppose the equation for the demand curve in a market is P=100 – 2Q. Also, suppose the equation for the supply curve in the same market is P=10+3Q. Suppose there is an external cost of $20 associated with the production of each unit of the good. The socially optimal quantity is O 4 units smaller than the market equilibrium quantity. O 22 units greater than the market equilibrium quantity O 14 units smaller than the market equilibrium quantity O 4 units greater than the market equilibrium quantity.arrow_forward3. Suppose the production possibility frontier for an economy that produces one public good (y) and one private good (x) is given by x*+100y =5,000 This economy is populated by 100 identical individuals, each with a utility function of the form Utility = (x,y)2 where x,is the individual's share of private good production (=x/100). Notice that the public good is nonexclusive and that everyone benefits equally from its level of production. a. If the market for x and y were perfectly competitive, what levels of those goods would be produced? What would the typical individual's utility be in this situation? b. What are the optimal production levels for x and y? What would the typical individual's utility level be? (Hint: The numbers in this problem do not come out evenly, and some approximations should suffice.)arrow_forward
- Acres 1 2 3 4 5 6 7 -$5 -$2 $0 F $2 Sophia $10 8 6 3 1 0 0 Amber $24 18 14 8 6 4 2 Cedric $6 5 4 3 2 1 0 Refer to Table 11-1. Suppose the cost to build the park is $24 per acre and that the residents have agreed to split the cost of building the park equal. If the residents decide to build a park with size equal to the number of acres that maximizes total surplus from the park, how much total surplus will Sophia receive? 900127353arrow_forwardPRICE (Dollars per unit of electricity) 2000 1800 1600 1400 1200 1000 800 600 400 200 0 1 O 4 5 QUANTITY (Units of electricity) 3 6 Supply (Private Cost) Demand (Private Value) 7 Social Cost ? The market equilibrium quantity is units of electricity, but the socially optimal quantity of electricity production is To create an incentive for the firm to produce the socially optimal quantity of electricity, the government could impose a unit of electricity. units. of $ perarrow_forwardLO 18.2] 3. The weekly supply and demand for packs of cigarettes in Carcinia is given in Figure 18P-1. [ a. Suppose cigarette smoking causes a $6/pack external cost on non-smokers. Draw the demand curve that would exist if the externality associated with smoking were internalized by consumers. b. How many packs of cigarettes are consumed per week? c. What is the efficient number of cigarette packs? d. What would be the total gain in surplus if this externality could be internalized? FIGURE 18P-1 Price ($) CHECHENNAKKA208642 36 34 32 30 18 16 14 12 10 S D 0 2 4 6 8 10 12 14 16 18 20 22 24 26 28 30 Packs of cigarettes (millions) IN-CLASS ACTIVITY 5arrow_forward
- 7. Correcting for negative externalities - Taxes versus tradablepermits Paper factories emit chemicals as a waste product. This generates a cost to society that is not paid for by the firm; therefore, pollution is a negative externality of paper production. Suppose the U.S. government wants to correct this market failure by getting firms to internalize the cost of pollution. To do this, the government can charge firms for pollution rights (the right to emit a given quantity of chemicals). The following graph shows the daily demand for pollution rights. Use the graph input tool to help you answer the following questions. You will not be graded on any changes you make to this graph. Note: Once you enter a value in a white field, the graph and any corresponding amounts in each grey field will change accordingly. PRICE (Dollars per ton) 90 81 72 54 45 36 27 18 9 0 0 f 35 70 āt Demand 105 140 175 210 245 280 315 350 Graph Input Tool Daily Demand for Pollution Rights Price (Dollars per ton)…arrow_forwardThe graph shows the marginal social cost, supply, and demand curves in the hand sanitizer market. At what quantity could the government set a quota to control this externality? O 12 4 8.arrow_forward7. Correcting for negative externalities - Taxes versus tradablepermits Nuclear facilities emit radioactive waste as a waste product. This generates a cost to society that is not paid for by the firm; therefore, pollution is a negative externality of electricity production. Suppose the U.S. government wants to correct this market failure by getting firms to internalize the cost of pollution. To do this, the government can charge firms for pollution rights (the right to emit a given quantity of radioactive waste). The following graph shows the daily demand for pollution rights. Use the graph input tool to help you answer the following questions. You will not be graded on any changes you make to this graph. you enter a value in a white field, the graph and any corresponding amounts in each grey field will change accordingly. Note: Once PRICE(Dollars perton) 23 8 70 49 42 35 21 14 7 0 Demand 0 40 80 120 160 200 240 280 320 360 400 QUANTITY (Millions of tons) Graph Input Tool Daily Demand…arrow_forward
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