Macroeconomics: Principles, Problems, & Policies
20th Edition
ISBN: 9780077660772
Author: Campbell R. McConnell, Stanley L. Brue, Sean Masaki Flynn Dr.
Publisher: McGraw-Hill Education
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Question
Chapter 4, Problem 6P
To determine
The optimal quantity of public good.
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Use your demand schedule for a public good, determined in question 1, and the following supply schedule to ascertain the optimal quantity of this public good. Why is this the optimal quantity?
A medical vaccine is produced and sold in a perfectly competitive market. Assume that the medical vaccine generates a positive externality in consumption within the society.
(a) Draw a properly labeled graph for a competitive market providing this medical vaccine and show each of the following.
(i) The market equilibrium quantity, labeled QC
(ii) The socially optimal quantity, labeled QS
(iii) The area of the deadweight loss, shaded completely
(b) Identify one policy action that would lead to the production of the socially optimal quantity of the vaccine.
(c) Would a binding price ceiling result in the production of the socially optimal quantity of the vaccine? Explain.
Suppose there are two residents in a neighborhood, and you know both of their demand curves for a public good. What would you have to do in order to figure out what the social demand curve?
a-Subtract the demand of the person with the higher valuation of the public good from the demand of the person with the lower valuation of the public good
b-Add their demand curves together
c-Multiply the two demand curves together
d-Subtract the demand of the person with the lower valuation of the public good from the demand of the person with the higher valuation of the public good
Chapter 4 Solutions
Macroeconomics: Principles, Problems, & Policies
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 - Use marginal cost/marginal benefit analysis to...Ch. 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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- On a generic supply-demand graph, show the deadweight loss ( DWL) of a price ceiling that is placed below the equilibrium price for a product ( you should assume that there are NO externalities associated with the product).arrow_forwardTo produce honey, beekeepers place hives of bees in the fields of farmers. As bees gather nectar, they pollinate the crops in the fields, increasing the yields of these fields at no additional cost to the farmer. a) Is this an externality in consumption or production? b) Is this a negative or positive externality? c) If this externality is not internalized, would beekeepers produce more or less bees than socially optimal? Why? d) Suggest a market-based solution that would internalize the externality. In your answer, give reference to the social cost and social value curves. e) What might be a reasonable private solution to this externality and how might the solution be reached?arrow_forwardA set of perfectly competitive companies produce shoes. 1 pound of water pollution (WP) is released into the ocean which has a social cost of $c (per pound). The private cost of pollution is $0 when unregulated. i) Graph supply and demand curves and show the output and price of the unregulated market as well as the socially optimal output. ii) Indicate on the graph the amount of tax that would lead to the socially optimal level of production. iii) One of the companies produces Q shoes. Say there are pollution-reducing machines, K, which cost $1 each. When K = Ő machines, WP = 1 pound. With higher K, WP is lower. Give the cost-minimizing choice of WP and K when pollution is unregulated? Please explain with a diagram. iv) What would be the optimal tax rate if the government were to tax water pollution? v) When output of shoes Q is held constant, how do K and WP change when a pollution tax is instated?arrow_forward
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