In the market for widgets, consumers have a market demand (marginal benefit) curve of P = MB = 250- Q. In this problem, there is no distinction between private and social marginal benefit. The widget suppliers have a market supply (private marginal cost) curve of P = MC Private = 100+ Q. The production of widgets generates a negative externality in the form of pollution, with marginal external cost of X = 50. Due to this externality, there will be a difference between private and social marginal cost. Questions Analyze the following scenarios describing possible outcomes in the market for widgets. Efficient Outcome Find the equation for social marginal cost (MCSocial), using the information above. Determine the efficient quantity (Q*). AGEC 3503 ● 1 HW7 - Negative Externalities Calculate the joint surplus (JS"), total external cost (TX"), and the total surplus (TS*) based on the efficient quantity.
In the market for widgets, consumers have a market demand (marginal benefit) curve of P = MB = 250- Q. In this problem, there is no distinction between private and social marginal benefit. The widget suppliers have a market supply (private marginal cost) curve of P = MC Private = 100+ Q. The production of widgets generates a negative externality in the form of pollution, with marginal external cost of X = 50. Due to this externality, there will be a difference between private and social marginal cost. Questions Analyze the following scenarios describing possible outcomes in the market for widgets. Efficient Outcome Find the equation for social marginal cost (MCSocial), using the information above. Determine the efficient quantity (Q*). AGEC 3503 ● 1 HW7 - Negative Externalities Calculate the joint surplus (JS"), total external cost (TX"), and the total surplus (TS*) based on the efficient quantity.
Economics (MindTap Course List)
13th Edition
ISBN:9781337617383
Author:Roger A. Arnold
Publisher:Roger A. Arnold
Chapter30: Market Failure: Externalities, Public Goods, And Asymmetric Information
Section: Chapter Questions
Problem 10QP
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Transcribed Image Text:In the market for widgets, consumers have a market demand (marginal benefit)
curve of P = MB = 250 - Q. In this problem, there is no distinction between
private and social marginal benefit. The widget suppliers have a market supply
(private marginal cost) curve of P = MC Private = 100+ Q. The production of
widgets generates a negative externality in the form of pollution, with marginal
external cost of X = 50. Due to this externality, there will be a difference between
private and social marginal cost.
Questions
Analyze the following scenarios describing possible outcomes in the market for widgets.
Efficient Outcome
Find the equation for social marginal cost (MCsocial), using the information above.
Determine the efficient quantity (Q*).
AGEC 3503
1
●
HW7 - Negative Externalities
Calculate the joint surplus (JS*), total external cost (TX*), and the total surplus (TS*)
based on the efficient quantity.
Equilibrium Outcome
Find the market equilibrium, defined by the market quantity (Q) and price (P).
● Determine the consumer surplus (CS), producer surplus (PS), joint surplus (JS), total
external cost (TX), and the total surplus (TS) for the equilibrium outcome.
● Calculate the deadweight loss (DWL) for the equilibrium outcome.
Note: This scenario would also be called the unregulated or free market equilibrium,
especially in an analysis that also considered possible policies to correct the market
failure.
A
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