Suppose the equation for the demand curve in a market is P=100 – 20. Also, suppose the equation for the supply curve in the same market is P=10+3Q. Suppose there is an external cost of $20 associated with the production of each unit of the good. The socially optimal price is $8 greater than the market equilibrium price. $12 smaller than the market equilibrium price. $8 smaller than the market equilibrium price. $12 greater than the market equilibrium price.
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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.Suppose the equation for the demand curve in a market is P=100-1.5Q. Also, suppose the equation for the supply curve in the same market is P=0.5Q. Suppose there is an external cost of $40 associated with the production of each unit of the good. What isthe socially optimal quantity, and what is the price at this quantity? P=$2 Q=44 P=$55 Q=30 P=$34 Q=44 P=$31 Q=46Assume the market demand for cigarettes is as follows: Price per pack 1.00 1.50 2.00 2.50 3.00 3.50 4.00 4.50 5.00 Quantity (packs per day) 100 90 80 70 60 50 40 30 20 Suppose further that smoking creates external costs valued at 50 cents per pack. a.Draw the social and market demand curves b.At 3.50 per pack, what quantity is demanded in the market? c.What is the socially optimal quantity at that price?
- P = 500 - 4Q and the (inverse ) 2. Consider the market for automobiles Let the (inverse ) market demand function be market supply function be P = - 100 + 2Q Plot the demand and supply functions and show the market equilibrium Find the equilibrium output and price in this market and show it on your graph Consumption of automobiles (driving behavior of buyers) generate negative external effects on others in society because emissions associated with driving and any increase in the probability of automobile accidents (let us assume more cars on the road lead to a higher probability of automobile accidents). Assume that the marginal external loss/damage to society from the consumption of a car is worth $60. Using the information given above, construct the marginal social benefit and marginal social cost curves as necessary d. Now calculate the efficient number of cars that should be sold and bought in the market e. Identify the net efficiency loss to society from the market level of cars…a. Suppose a market is introduced for the externality Eveline causes on Victor. Let us denote by px the price of this externality. Suppose "property rights" are assigned such that Victor has the right not to experience the smell of cooked cabbage. The competitive equilibrium price ratios pm and Px are equal to? b. Derive the market allocation corresponding to the new competitive equilibrium of the economy formed by Eveline and Victor (ce, me) and (cv,mv). c. Is the new competitive equilibrium Pareto efficient?Suppose demand is QD =12 - P supply is QS = 2P. There is a constant positive externality of $6 per unit (Marginal External Benefit, MEB = $6). What subsidy would achieve the efficient allocation? In other words, what subsidy would maximize social surplus? (Do not overthink this one.) Find quantity given this subsidy. What is the social benefit that accrues due to the quantity in the previous part? (Hint: It is MEB times the quantity.) Find (private) producer surplus given this subsidy. Find (private) consumer surplus given this subsidy. How much would this subsidy cost the government? In other words, find government “revenue” (which will end up being a negative number). Add up the answers to the previous four questions to find social surplus. (It should be the same as the area between MSB and MSC.)
- You are an industry analyst that specializes in an industry where the market inverse demand is P = 200 - 5Q. The external marginal cost of producing the product is MCExternal = 10Q, and the internal cost is MCInternal = 16Q.Instructions: Enter your responses rounded to the nearest two decimal places.a. What is the socially efficient level of output? unitsb. Given these costs and market demand, how much output would a competitive industry produce? unitsc. Given these costs and market demand, how much output would a monopolist produce? unitsd. Which of the following are actions the government could take to induce firms in this industry to produce the socially efficient level of output.Instructions: In order to receive full credit, you must make a selection for each option. For correct answer(s), click the box once to place a check mark. For incorrect answer(s), click twice to empty the box. Pollution taxesunanswered Pollution permitsunanswered Nonrival consumptionunanswered1 Assume the market demand for cigarettes is as follows: Price per pack 1.00 1.50 2.00 2.50 3.00 3.50 4.00 4.50 5.00 Quantity (packs per day) 100 90 80 70 60 50 40 30 20 Suppose further that smoking creates external costs valued at 50 cents per pack. a.Draw the social and market demand curves b.At 3.50 per pack, what quantity is demanded in the market? c.What is the socially optimal quantity at that price? d.How large would a tax need to be in order to bring about this socially optimal level?The market for plasticans is perfectly competitive. Market Supply is givenby Q=6P and Market Demand is given by Q=499-2P. Each extra unit ofplastican produced imposes a negative externality of $8. What is the totalcost of the externality at the market equilibrium?
- 2. Assume the market demand for cigarettes is as follows: Price per pack 1.00 1.50 2.00 2.50 3.00 3.50 4.00 4.50 5.00 Quanti ty (packs per day) 100 90 80 70 60 50 40 30 20 Suppose further that smoking creates external costs valued at 50 cents per pack. a. Draw the social and market demand curves b. At 3.50 per pack, what quantity is demanded in the market? 50 packs c. What is the socially optimal quantity at that price? ? d. How large would a tax need to be in order to bring about this socially optimal level? ?The demand and supply functions of a product is given as P = 200- 0.5Q and P = 100+ 0.5Q, respectively. Solve for the equilibrium price and quantity in the product market. If the product has an external benefit of $20, analyse the market and determine the social optimal quantity. Compute the deadweight loss if the market operates at its equilibrium level. Support your answers with a suitable market diagram. What can the government do to restore efficiency in the product market? (b) Consider two consumers of a product, A and B, with an individual demand function QA = 400-5P, and QB = 300 -2.5PB, respectively, where P is the price in dollars and Q is the quantity demanded. (i) Obtain and analyse the marginal social benefit function if the product is a public good. Support your answers with a suitable diagram. (ii) If the marginal cost of producing the public good is $10, compute the optimal quantity of the public good. How will your answer be different if the marginal cost is $30…The market for plasticans is perfectly competitive. Market Supply is givenby Q=7P and Market Demand is given by Q=455-2P. Each extra unit ofplastican produced imposes a negative externality of $8. Implement theoptimal Pigouvian tax/subsidy that implements the efficient outcome.
