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Discuss how trade can generate both positive and negative externalities. Use relevant diagrams to support your answer.
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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.Aside from pig farming, what other industries might be affected by the larger externality?Show how a tax or subsidy can be used to counteract an externality,and discuss the pros and cons of such a solution.
- Does the allocation of permits in a cap-and-trade scheme matter for efficiency? Explain briefly.Give three examples of activities accompanied by external costs and benefits.Explain the concept of an externality. Explain and show graphically how externalities lead to market failure and an inefficient allocation of resources.
- Explain in detail. How externality can lead to a market failure?(a) Explain the concept of public goods and discuss how these characteristics may pose challenges in the context of international trade.(b) Discuss how trade can generate both positive and negative externalities. Use relevant diagrams to support your answer.Q. 3 Suppose now that there is a negative production externality in country B. This externality arises from less strict environmental regulations in country B. [Country A does not have a production externality because it uses a “clean” production technology.] Demand is P=100- 9Q and supply is P=Q, world price = $25 Draw a new diagram where there is a negative production externality with a constant value of 15 for every unit produced. Suppose that the government does not intervene in the market. Compute country B’s welfare under autarky and free trade with the negative production externality. Briefly explain if country A’s welfare is affected by the production externality in B. Do you agree with the claim that welfare under free trade (compared to autarky) improves in both countries when a negative production externality is present? Briefly explain why (not). Suppose the negative production externality was 5 instead of 15. Does your qualitative (not quantitative) answer…
- A student using an e-cigarette in a library emits clouds of vapor that disrupt others working close to them. is this market power or externalityWhy is free-riding in the context of international environmental agreements such a major problem? What is the source of the market failure? What are some possible mechanisms to mitigate this market failure problem?The following graph (see link below) represents the market for high-emission cars. Answer the following questions assuming that the externality is not internalised. - What is the social value of the last unit traded on the market? - What is the social cost of the last unit traded on the market? - Which quantity is socially optimal (what is the effecient quantity)? - What is the deadweight loss generated by the externality?