An externality arises when a firm or person engages in an activity that affects the well-being of a third party, yet neither pays nor receives any compensation for that effect. If the impact on the third party is detrimental, it is called a externality. The following graph shows the demand and supply curves for a good with this type of ext negative e dashed drop lines on the graph reflect the market equilibrium price and quantity for this good. positive Shift one of the curves to reflect the presence of the externality. If there are external costs of production, then you should shift the supply curve to reflect the social costs of producing the good; similarly, if there are external benefits from production, then you should shift the dermand curve to reflect the social benefits from consuming the good. PRICE (Dollars per unit) QUANTITY (Units) Supply Demand Demand Supply ?
An externality arises when a firm or person engages in an activity that affects the well-being of a third party, yet neither pays nor receives any compensation for that effect. If the impact on the third party is detrimental, it is called a externality. The following graph shows the demand and supply curves for a good with this type of ext negative e dashed drop lines on the graph reflect the market equilibrium price and quantity for this good. positive Shift one of the curves to reflect the presence of the externality. If there are external costs of production, then you should shift the supply curve to reflect the social costs of producing the good; similarly, if there are external benefits from production, then you should shift the dermand curve to reflect the social benefits from consuming the good. PRICE (Dollars per unit) QUANTITY (Units) Supply Demand Demand Supply ?
Chapter8: Market Failure
Section: Chapter Questions
Problem 2P: Draw a standard supply and demand diagram for televisions, and indicate the equilibrium price and...
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Transcribed Image Text:With this type of externality, in the absence of government intervention, the market equilibrium quantity produced will be
efficient quantity.
Which of the following generate the type of externality previously described? Check all that apply.
greater
less
A microbiology lab has published its breakthrough in swine flu research.
O Your roommate, Jake, has bought a bird that keeps you up at night with its chirping.
than the
O Dmitri has planted several trees in his backyard that increase the beauty of the neighborhood, especially during the fall foliage
season.
The city where you live has granted a permit to put a movie theater in your neighborhood, causing traffic jams at night and on
weekends.
Transcribed Image Text:An externality arises when a firm or person engages in an activity that affects the well-being of a third party, yet neither pays nor receives any
compensation for that effect. If the impact on the third party is detrimental, it is called a
externality.
The following graph shows the demand and supply curves for a good with this type of ext negative e dashed drop lines on the graph reflect the
market equilibrium price and quantity for this good.
positive
Shift one of the curves to reflect the presence of the externality. If there are external costs of production, then you should shift the supply
curve to reflect the social costs of producing the good; similarly, if there are external benefits from production, then you should shift the
demand curve to reflect the social benefits from consuming the good.
PRICE (Dollars per unit)
QUANTITY (Units)
Supply
Demand
Demand.
Supply
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