Table 10-1 Quantity (Units) 1 2 3 4 5 6 7 OOOC $2 $3 $9 Private Value O $10 (Dollars) 14 13 12 11 10 9 8 Private Cost (Dollars) Refer to Table 10-1. How large would a corrective tax need to be to move this market from the equilibrium outcome to the socially optimal outcome? 10 11 12 13 14 15 16 External Cost (Dollars) 2 2 2 2 2 2 2
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- What is a marketable permit and what incentive does it provide for a firm to account for external costs?A city currently emits 15 million gallons (MG) of raw sewage into a lake that is beside the city. Table 12.13 shows the total costs (TC) in thousands of dollars of cleaning up the sewage to different levels, together with the total benefits (TB) of doing so. Benefits include environmental, recreational, health, and industrial benefits. Using the information in Table 12.13 calculate the marginal costs and marginal benefits of reducing sewage emissions for this City. What is the optimal level of sewage for this city? How can you tell?Suppose that Sonys R. Is this a private or social benefit?
- Refer to Table 12.2. The externality created by the refrigerator production was 100. However, once we accounted for both the private and additional external costs, the market price increased by only 50. If the external costs were 100 why did the price only increase by 50 when we accounted for all costs?Assume that the marginal private costs of a film producing fuel-efficient can; is greater than the marginal social costs. Assume that the marginal private benefits of a firm producing fuel efficient cars are the same as the marginal social benefits. Discuss one wags.r that the government cans fly to increase production and sales of fuel efficient cars to the socially desirable amount. Hint: the government is flying to affect production through costs, net benefits.24 22 18 16 6 Price O 120 units 40 units 0 units 120 O160 units 160 Social cost (pavate cost and extemal cost) The graph shows the market for a chemical that produces a negative externality. The socially optimal quantity is Supply (private cost) Demand (pavate value) Quantity
- PRICE (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 $ perLighthouses are a good that is non-excludable and non-rival (i.e. a Public Good). Given there are currently 2 boats in the area and the marginal cost shown in gray. What is the Socially Optimal level of Lighthouses? 02 49 3 O t 05 Price ($) $80- $70- $60- $50 $40 $30- $20- $10- 0 0 Lighthouse Market 2 3 Lighthouses, QL Marginal Cost 5 MBA MBB 6мсо 46 If the units of output purchased in a competitive market generate positive externality benefits, we can infer that the competitive equilibrium outcome is such that: A the market price is equal to marginal social benefit B marginal private cost is greater than the market price C I do not want to answer this question. D marginal private cost is greater than marginal private benefit E marginal private cost is less than marginal social benefit F marginal private benefit is greater than marginal social benefit
- 0 Figure 4 PRICE (Dollars per unit) 9.00 8.40 6.21 4.50 Social Cost Supply 48 60 76 100 QUANTITY (Units of tobacco) O $6.21 and 76 units, respectively. O $9.00 and 60 units, respectively. O $8.40 and 48 units, respectively. O $4.50 and 100 units, respectively. Demand Refer to Figure 4. This graph represents the tobacco industry. The socially optimal price and quantity areQuantity Private Value Private Cost External Cost (Units) (Dollars) (Dollars) (Dollars) 6 6 6 6 6 6 6 1 2 3 4 5 6 7 Table 10-4 46 44 42 40 38 36 34 21 24 27 30 33 36 39 Refer to Table 10-4. Which of the following policies would move the market from the market equilibrium to the socially optimal equilibrium? O a. A tax of $6 per unit of output O b. A tax of $4 per unit of output O c. A subsidy of $4 per unit of output O d. A subsidy of $6 per unit of outputQ4. (a) If you are a firm owner who is operating in the perfect competitive market, you areproducing socially efficient outcome. Does it imply that your profits are zero? If you become amonopolist then why do you deviate from the socially efficient outcome? b) In Delhi, as the winter season is approaching, how will it affect the demand function and themarket equilibrium of sweater market? Now after that if the price of wool increases how will themarket equilibrium be affected?