Before you answer this question, you may find it easier if you sketch a graph of a market with a subsidy given to buyers. In a market where a per-unit subsidy has been given to buyers, but there are no externalities in that market, ( Select) v shifts out by the amount of the subsidy. The equilibrium quantity in the market ISelect ] and the equilibrium price [ Select 1 Since demand represents | Select ) and supply represents | Select ) at the equilibrium quantity after the subsidy is imposed

Before you answer this question, you may find it easier if you sketch a graph of a market with a subsidy given to buyers. In a market where a per-unit subsidy has been given to buyers, but there are no externalities in that market, ( Select) v shifts out by the amount of the subsidy. The equilibrium quantity in the market ISelect ] and the equilibrium price [ Select 1 Since demand represents | Select ) and supply represents | Select ) at the equilibrium quantity after the subsidy is imposed

Exploring Economics

8th Edition

ISBN:9781544336329

Author:Robert L. Sexton

Publisher:Robert L. Sexton

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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Draw a standard supply and demand diagram for televisions, and indicate the equilibrium price and output. a. Assuming that the production of televisions generates external costs, illustrate the effect of the producers being forced to pay a tax equal to the external costs generated, and indicate the equilibrium output. b. If instead of generating external costs, television production generates external benefits, illustrate the effect of the producers being given a subsidy equal to the external benefits generated, and indicate the equilibrium output.
Consider Good A. There are NO externalities associated with Good A. a.) Draw a ( general- you don’t need any specific numbers) graph that shows the deadweight loss that would result if a tax is placed on Good A. b.) Suppose that, after the tax is placed on Good A, the quantity consumed ( by all customers) is equal to 90,000 units of Good A. Is the efficient level of output in the market for Good A greater than 90,000 , less than 90,000 , or equal to 90,000 ( just circle your answer ; you don’t have to explain)? (7) The efficient level is greater than 90,000 The efficient level is less than 90,000 The efficient level is equal to 90,000
Use appropriate figures to show the deadweight losses associated with a) positive externalities b) negative externalities (in a perfectly competitive goods market)
Assume there is a positive externality associated with having a tertiary education. Is the deadweight loss from the subsidy increased or decreased with the introduction of the positive externality? Why?
Give an example of an externality. Explain how a tax or subsidy might be used to “correct” for the inefficiency of a market equilibrium in the presence of an externality.
The following graph provides a stylised representation of the effects of the policy proposed by the government to correct for the externality (in the graph, S2 is the supply curve after the policy is implemented). 1. If the policy is implemented, what is the price-quantity combination determined by the market? 2. If the policy is implemented, what is the price that buyers pay? 3. If the policy is implemented, what is the deadweight loss generated by the externality?
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Q1. If there are no externalities a competitive market achieves economic efficiency. If there is anegative externality, economic efficiency will not be achieved because a. too much of the good will be produced. b.a deadweight loss will occur that is equal to the area under the demand curve for the good. c.too little of the good will be produced. d.economic surplus is maximized
If a third party in a market transaction incurs a positive benefit/externality, how can this transaction result in inefficiency or deadweight loss in a market from societal perspective. Use a graph and an example to explain your answer.
Explain how a tax or subsidy might be used to “correct” for the inefficiency of a market equilibrium in the presence of an externality.
Which of the following statements is TRUE?I. A Pigouvian subsidy reduces the market price to encourage consumption and correct for the underproduction of a good.II. A Pigouvian tax increases the market price to discourage consumption and correct for the overproduction of a good.III. Negative externalities create deadweight losses, but positive externalities do not. I, II, and III I only III only I and II only
The figure below shows a market in which there is an externality. The curve S2 is parallel to S1. Areas in the figures are numbered. What type of externality is shown in the figure and why is it a problem in economics? Identify the market equilibrium and the social equilibrium in the figure. If the market were to move from the market equilibrium to the social equilibrium, indicate the area(s) that represent the change in consumer surplus, the change in producer surplus, the change for third parties, and the net effect on total surplus. Does total surplus rise or fall? What would be the amount of a per-unit tax needed to fix the externality?