Externalities I Perhaps ironically, air conditioners produce heat as a waste product (to say nothing of any externalities from energy consumption). Air conditioner’s waste warm up nearby outdoor areas. This effect can be substantial in dense cities. Suppose that the following are the benefits/ costs from running an air conditioner on a 90 degree day (Q is the temperature reduction enjoyed by the consumer of the air conditioning): MPB=MSB=30-Q MPC=10 External Cost=5 a) Graph the private/social marginal benefit/cost curves described above. b) Determine the market equilibrium consumption of Q. c) Determine the socially optimal consumption level of Q. d) Calculate the consumer/producer surplus in b) and c). Calculate the deadweight loss in each, if applicable. e) What is the deal with producer surplus? f) Det
Externalities I Perhaps ironically, air conditioners produce heat as a waste product (to say nothing of any externalities from energy consumption). Air conditioner’s waste warm up nearby outdoor areas. This effect can be substantial in dense cities. Suppose that the following are the benefits/ costs from running an air conditioner on a 90 degree day (Q is the temperature reduction enjoyed by the consumer of the air conditioning): MPB=MSB=30-Q MPC=10 External Cost=5 a) Graph the private/social marginal benefit/cost curves described above. b) Determine the market equilibrium consumption of Q. c) Determine the socially optimal consumption level of Q. d) Calculate the consumer/producer surplus in b) and c). Calculate the deadweight loss in each, if applicable. e) What is the deal with producer surplus? f) Det
Principles of Economics, 7th Edition (MindTap Course List)
7th Edition
ISBN:9781285165875
Author:N. Gregory Mankiw
Publisher:N. Gregory Mankiw
Chapter11: Public Goods And Common Resources
Section: Chapter Questions
Problem 2PA
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Q.3.
Externalities I
Perhaps ironically, air conditioners produce heat as a waste product (to say nothing of any externalities from energy consumption). Air conditioner’s waste warm up nearby outdoor areas. This effect can be substantial in dense cities. Suppose that the following are the benefits/ costs from running an air conditioner on a 90 degree day (Q is the temperature reduction enjoyed by the consumer of the air conditioning):
MPB=MSB=30-Q
MPC=10
External Cost=5
a) Graph the private/social marginal benefit/cost curves described above.
b) Determine the market equilibrium consumption of Q.
c) Determine the socially optimal consumption level of Q.
d) Calculate the consumer/producer surplus in b) and c). Calculate the deadweight loss in each, if applicable.
e) What is the deal with producer surplus?
f) Determine the tax that will yield the socially optimal consumption level. What is the revenue generated by the tax?
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