Micro Economics For Today
10th Edition
ISBN: 9781337613064
Author: Tucker, Irvin B.
Publisher: Cengage,
expand_more
expand_more
format_list_bulleted
Question
Chapter 4, Problem 7SQP
To determine
The measures to deal with market failure.
Expert Solution & Answer
Trending nowThis is a popular solution!
Students have asked these similar questions
Based on market research, a film production company in Ectenia obtains the following information
about the demand and production costs of its new DVD:1
Demand: P = 1,000 – 10Q
Marginal Revenue: MR = 1,000 – 20Q
Marginal Cost: MC = 100 + 10Q
a. Find the price and quantity that maximize the company’s profit.
b. Find the price and quantity that would maximize social welfare.
c. Use a graph to illustrate the DWL and calculate the dollar value of the DWL.
Suppose that there is an unregulated market for pesticides. When the factories produce pesticide, they also create waste that they dump into a lake on the outskirts of town. The market for pesticides is given by the following equations (note that Q is in tons, and P is in 1000s of dollars:
Demand: P = 8 – Q
Supply: P = Q
Marginal Social Cost: P = 2 + Q
Now suppose the government levies a pollution tax. What is the tax per ton of pesticide that will achieve the socially efficient outcome? If the production of pesticides at any level produces pollution, why is the socially optimal quantity not zero?
Explain the difference between a positive externality and a negative externality. Can both types of externalities result in market failure? Why or why not?
Chapter 4 Solutions
Micro Economics For Today
Ch. 4.2 - Prob. 1YTECh. 4.2 - Prob. 2YTECh. 4.2 - Prob. 3YTECh. 4.2 - Prob. 4YTECh. 4.3 - Prob. 1YTECh. 4.3 - Prob. 2YTECh. 4 - Prob. 1SQPCh. 4 - Prob. 2SQPCh. 4 - Prob. 3SQPCh. 4 - Prob. 4SQP
Ch. 4 - Prob. 5SQPCh. 4 - Prob. 6SQPCh. 4 - Prob. 7SQPCh. 4 - Prob. 8SQPCh. 4 - Prob. 9SQPCh. 4 - Prob. 10SQPCh. 4 - Prob. 1SQCh. 4 - Prob. 2SQCh. 4 - Prob. 3SQCh. 4 - Prob. 4SQCh. 4 - Prob. 5SQCh. 4 - Prob. 6SQCh. 4 - Prob. 7SQCh. 4 - Prob. 8SQCh. 4 - Prob. 9SQCh. 4 - Prob. 10SQCh. 4 - Prob. 11SQCh. 4 - Prob. 12SQCh. 4 - Prob. 13SQCh. 4 - Prob. 14SQCh. 4 - Prob. 15SQCh. 4 - Prob. 16SQCh. 4 - Prob. 17SQCh. 4 - Prob. 18SQCh. 4 - Prob. 19SQCh. 4 - Prob. 20SQ
Knowledge Booster
Similar questions
- The market for used phones is perfectly competitive without externalities. Market demand is Q=235-2P and Market Supply is P=2Q+11. Suppose the Marginal Cost (MC) increases by $10 at every quantity. What is market Producer Surplus after this increase in MC? (Note: this question is not asking for the change in PS, just the PS after the increase in MWTP) Enter a number only, drop the $ signarrow_forwardThis summer, the temperature records on each other's feet seem to be beaten. In Sweden, the temperature has recently risen to 43 degrees and birds are falling from the sky over exhausted and dying. Carbon emissions are one of the main challenges facing mankind today. Explain the market failure caused by the emissions. Under competitive conditions, the government can use various control tools to establish efficient quantities, e.g. with a fee. Show the effect of such a solution on a diagram and explain in detail why an economical amount involves some pollution. In a monopoly situation, it is not as simple as establishing efficiency by charging emissions. Explain in words and pictures how the different interplay between the cost factors of a company and pollution costs can cause certain government tariffs on pollution to be cost-effective on the one hand and inefficient on the other.arrow_forwardWhen there is a deadweight loss in the market, the marginal benefit must be larger than the marginal cost at the quantity transacted. Do you agree? Explain with a diagram.arrow_forward
- A power plant releases an unpleasant odor into the local environment. This market is perfectly competitive, and the plant does not consider the damages imposed on local citizens in terms of lower air quality. The market can be characterized by the following equations: MPB = 800 - 0.5Q MPC = 80 + 0.3Q MEC = 0.4 Q a) Find the competitive equilibrium price and quantity, Qc and Pc. b) Find the socially optimal (or efficient) price and quantity, Qe and Pe. c) Provide a geographical depiction of the competitive and socially optimal solutions. Make sure you label the graph focusing on the following items: units of each axis, labels of curves (MPC, MPB, MSB, MSC), competitive equilibrium price and quantity, and socially optimal price and quantity. d) Analytically derive the social welfare gains from internalizing the externality AND illustrate this welfare gain on the figure you created in part (c). e) Suppose the plant owns the property rights to local air and it is…arrow_forwardThe market for used phones is perfectly competitive without externalities. Market demand is Q=271-2P and Market Supply is P=2Q+18. What is market Consumer Surplus? Enter a number only, drop the $ sign.arrow_forwardExplain the connection between the following two concepts: Producer surplus and Benefits of a regulation on pollution.arrow_forward
- In a market with external costs, the market price is: regulated by the government. lower than the efficient price. equal to the efficient price. higher than the efficient pricearrow_forwardThe diagram to the right shows the perfectly competitive market for honey. The demand curve shows the marginal benefit to society of consuming an extra unit of honey. The supply curve shows the marginal costs of producing an extra unit of honey. However, suppose that, as a by-product to producing honey, honeybees pollinate flowers, allowing more flowers to grow and bloom. Suppose that for each unit of honey produced, one unit of flowers is also created, providing an external benefit of $6. Use the line drawing tool to draw and label the social marginal cost curve. (Make sure that the curve's one end extends to the output level 18 and it crosses the demand curve.) Carefully follow the instructions above, and only draw the required objects. C Price of Honey ($) 20.00- 18.00- 16.00- 14.00- 12.00- 10.00- 8.00- 6.00- 4.00- 2.00- 0.00- 0 -N 2 4 6 8 10 12 14 Quantity of Honey S = MCp 16 D = MB 18 20arrow_forwardConsider a competitive market for Good Y. This good involves a negative consumption externality. i) Is this market efficient? Why? ii) Imagine that the competitive market for Good Y consolidates and becomes a monopoly. Does this make the market more, or less efficient relative to the situation above? Include a graph to make the point clearer.arrow_forward
- The market for used phones is perfectly competitive without externalities. Market demand is Q=338-2P and Market Supply is P=2Q+37. What is Total Surplus?arrow_forwardThe market for pencils perfectly competitive without externalities. Market demand is Q=364-2P and Market Supply is P=2Q+19. What is the market Consumer Surplus and the Producer Surplus?arrow_forwardExplain the effect of external cost on the quantity and price of market goods, using the graph. The negative and positive effectsarrow_forward
arrow_back_ios
SEE MORE QUESTIONS
arrow_forward_ios
Recommended textbooks for you
