Problem 1: ExternalityThe weekly supply and demand for packs of cigarettes in the United States is given in thefigure below. Suppose cigarette smoking causes an external cost on nonsmokers, as shownby the social benefit curve on the graph.Price ($)363432302826S=MC=MC24pvtSI22201816141210864MBpvtsocial2MB4 6 810 12 14 16 18 20 22 24 26 28 30 32Pack of cigarettes (millions)a. This is a[ Select ][ Select ]externality. b. How much is the external cost (in $ per pack)?2$c. Without any intervention into the market, how many million packs of cigarettes areconsumed per week?milliond. What is the efficient (or socially optimal) number of cigarette packs?millione. Without intervention in this market, what is the deadweight loss that arises as a result ofthe externality? Locate the area on the graph and calculate the dollar value.2$millionf. If the government wants to use a Pigovian tax to internalize the externality and bring themarket to the socially optimal quantity, what would the amount of the tax need to be inorder to eliminate the deadweight loss?per pack%24

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Problem 1: Externality The weekly supply and demand for packs of cigarettes in the United States is given in the figure below. Suppose cigarette smoking causes an external cost on nonsmokers, as shown by the social benefit curve on the graph. Price ($) 36 34 32 30 28 26 S=MC =MC pvt SI 24 22 20 - 18 16 - 14 - 12 10 8- 6- 2- MB MB pvt 2 4 6 8 10 12 14 16 18 20 22 24 26 28 30 32 Pack of cigarettes (millions) a. This is a [ Select ] [ Select ] V externality.

Problem 1: Externality The weekly supply and demand for packs of cigarettes in the United States is given in the figure below. Suppose cigarette smoking causes an external cost on nonsmokers, as shown by the social benefit curve on the graph. Price ($) 36 34 32 30 28 26 S=MC =MC pvt SI 24 22 20 - 18 16 - 14 - 12 10 8- 6- 2- MB MB pvt 2 4 6 8 10 12 14 16 18 20 22 24 26 28 30 32 Pack of cigarettes (millions) a. This is a [ Select ] [ Select ] V externality.

Principles of Economics 2e

2nd Edition

ISBN:9781947172364

Author:Steven A. Greenlaw; David Shapiro

Publisher:Steven A. Greenlaw; David Shapiro

Chapter12: Environmental Protection And Negative Externalities

Section: Chapter Questions

Problem 41P: Refer to Table 12.2. The externality created by the refrigerator production was 100. However, once...

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Identify the following situations as an example of a negative or a positive externality: You are a birder (bird watcher), and your neighbor has put up several birdhouses in the yard as well as planting trees and flowers that attract birds. Your neighbor paints his house a hideous color. Investments in private education raise your countrys standard of living. Trash dumped upstream flows downstream right past your home. Your roommate is a smoker, but you are a nonsmoker.
Refer to Table 12.2. The externality created by the refrigerator production was 100. However, once we accounted for both the private and additional external costs, the market price increased by only 50. If the external costs were 100 why did the price only increase by 50 when we accounted for all costs?
Suppose you want to put a dollar value on the external costs of carbon emissions from a power plant. What information or data would you obtain to measure the external [not social] cost?
Table 12.12, shows the supply and demand conditions for a firm that will play trumpets on the streets when requested. QS1 is the quantity supplied without social costs. QS2 is the quantity supplied with social costs. What is the negative externality in this situation? Identify the equilibrium price and quantity when we account only for private costs, and then when we account for social costs. How does accounting for the externality affect the equilibrium price and quantity?
What is a pollution charge and what incentive does it provide for a firm to take external costs into account?