EUSubsidy No subsidySubsidy 100, 100500, 50No subsidy 50, 500250, 250That is, if both governments subsidize their firms, the payoff to each country (net of thesubsidy) is 100 million dollars. If India subsidizes India Biotech and the EU does not subsidizeZaxtra Vaccines, India Biotech will dominate the market. Hence, the payoff to India is 500million dollars (net of the subsidy) and the payoff to the EU is 50 million dollars. If the EUsubsidizes Zaxtra Vaccines and India does not subsidize India Biotech, the EU gets 500 milliondollars and India gets only 50 million dollars. If neither country offers a subsidy (free tradescenario), then both countries get 250 million dollars.a.Obtain the Nash equilibria of this game. What are the associated payoffs for eachcountry?b.If both countries cooperate, can they achieve a better outcome? Explain.C.Can you think of one way in which the two countries can ensure that the cooperativeoutcome is reached?India

Nash equilibrium point is said to be that strategy set in which no player has an incentive to…

EU Subsidy No subsidy Subsidy 100, 100 500, 50 No subsidy 50, 500 250, 250 That is, if both governments subsidize their firms, the payoff to each country (net of the subsidy) is 100 million dollars. If India subsidizes India Biotech and the EU does not subsidize Zaxtra Vaccines, India Biotech will dominate the market. Hence, the payoff to India is 500 India

EU Subsidy No subsidy Subsidy 100, 100 500, 50 No subsidy 50, 500 250, 250 That is, if both governments subsidize their firms, the payoff to each country (net of the subsidy) is 100 million dollars. If India subsidizes India Biotech and the EU does not subsidize Zaxtra Vaccines, India Biotech will dominate the market. Hence, the payoff to India is 500 India

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.
The following table describes the productionpossibilities of two cities in the country of Baseballia:Pairs of RedSocks per Workerper HourPairs of WhiteSocks per Workerper HourBoston 3 3Chicago 2 1a. Without trade, what is the price of white socks (interms of red socks) in Boston? What is the price inChicago?b. Which city has an absolute advantage in theproduction of each color sock? Which city has acomparative advantage in the production of eachcolor sock?c. If the cities trade with each other, which color sockwill each export?d. What is the range of prices at which mutuallybeneficial trade can occur?
a) Given that Vincyland is a small country, thorougly examine the partial equilibrium welfare effects associated with imposing a tariff on their import good given that the prediction of the imported good yields a positive externality.(use theories) b) Should a subsidy have given a more desirable solution. Please explain thorougly Assume that Trinbago is a small country that produces wine and motor vehicles, where motorvehicles are capital intensive. Trinbago is also capital intensive, and the standard Heckscher -Ohlin(H-O) assumptions hold. The other country in the model is Vincyland.
Suppose that a mayor of a large city believes strongly that education provides great benefits to the community andurges the state government to provide the district with more money. An economist would say that this reflects theMayor's belief that:Asince teachers are overpaid, the district needs more money to hire enough teachers for its classrooms.Bthere are positive external benefits associated with education.Cthere are nontrivial external costs associated with education.Dpublic schools provide a higher quality education than private schools.
Fish that swim in international waters are a common good that are freely available toanyone who wants to catch them, but this leads to the problem of over-fishing. At theheart of this problem lies an externality. Using appropriate diagrams andaccompanying discussion, show both how and why this over-fishing takes place. Inyour explanation, identify the source of the externality.
3. A small country can import a good at a world price of 10 per unit. The domestic supplycurve of the good is S = 20 + 10P , D = 400 - 5P.In addition, each unit of production yields a marginal social benefit of 10.Now, suppose demand and supply are exactly as described in problem 3, but there is nomarginal social benefit to production. However, for political reasons the government counts adollar's worth of gain to producers as being worth $3 of either consumer gain or governmentrevenue. Calculate the effects on the government's objective of a tariff of 5 per unit
Your grandmother likes old-fashioned yard salesand doesn’t understand why everyone is so excitedabout eBay. Explain to her why the creation of amarket that enables people who don’t live in thesame town to buy and sell used goods increasestotal surplus over the yard-sale market.
Greater consumption of alcohol leads to more motorvehicle accidents and, thus, imposes costs on peoplewho do not drink and drive.a. Illustrate the market for alcohol, labeling thedemand curve, the social-value curve, thesupply curve, the social-cost curve, the marketequilibrium level of output, and the efficient levelof output.b. On your graph, shade the area corresponding tothe deadweight loss of the market equilibrium.(Hint: The deadweight loss occurs because someunits of alcohol are consumed for which the socialcost exceeds the social value.) Explain.
Write down a model of positive production externality with two firms, in which theproduction activities of one firm directly affects the production/cost of the other firm.State and explain the key assumptions of the model. Using the model, answer thefollowing questions:(a) Explain why the presence of a positive production externality could prevent therealisation of an efficient outcome.(b) Name a possible cure for the positive production externality and explain how itcould solve the inefficiency problem.
Most countries today have subsidised the provision of education. Consider an imaginary country, Gondolin. Gondolin pays a subsidy of $10 000 per year to each student enrolled in tertiary education. Depict, with the help of a figure, the initial market for tertiary education in Gondolin, assume that: 1) education was left to the competitive free market; 2)the marginal private benefit is equal to the marginal social benefit; 3) themarginal private cost is equal to the marginal social cost. Now describe, using the help of the figure, the effect of the government subsidy on the price and quantity traded of tertiary education, where the X axis of the figure should be the quantity of students enrolled in tertiary education. You do not need to use actual numbers – focus on the direction of change in price and quantity traded caused by the subsidy.
Most countries today have subsidised the provision of education. We will use the UK as an example country. Let’s say that the UK pays a subsidy of $10 000 per year to each student enrolled in tertiary education. a. Subsidies lead to overproduction and overconsumption relative to the competitive equilibrium. What is the deadweight loss associated with this? Why is there a deadweight loss? Depict this in a figure. b. The original assumption for the UK stated that the marginal private benefit is equal to the marginal social benefit. Now instead assume that the marginal social benefit of tertiary education is greater than the marginal private benefit. That is, assume there is a positive externality associated with having a tertiary education. Draw this in a new figure. Is the deadweight loss from the subsidy increased or decreased with the introduction of the positive externality? Why?
Two towns, each with three residents, are decidingwhether to put on a fireworks display to celebrate theNew Year. Fireworks cost $360. In each town, somepeople enjoy fireworks more than others.a. In the town of Bayport, each of the residentsvalues the public good as follows:Frank $50Joe $100Callie $300Would fireworks pass a cost–benefit analysis?Explain.b. The mayor of Bayport proposes to decide bymajority rule and, if the fireworks referendumpasses, to split the cost equally among allresidents. Who would vote in favor, and whowould vote against? Would the vote yield thesame answer as the cost–benefit analysis?c. In the town of River Heights, each of the residentsvalues the public good as follows:Nancy $20Bess $140Ned $160Would fireworks pass a cost–benefit analysis?Explain.d. The mayor of River Heights also proposes todecide by majority rule and, if the fireworksreferendum passes, to split the cost equallyamong all residents. Who would vote in favor,and who would vote against? Would…