The demand and supply curves of fire extinguishers are given by Qa= 10,000 - 10P and Qs = 15P, respectively. Each fire extinguisher bought by consumers causes an external benefit of $4 (external benefit from consumption). The production process of fire extinguishers does not have any impact on bystanders in the economy. a) Without any consideration of the externality, how much are the market-equilibrium price and quantity of fire extinguishers? Depict this market equilibrium on a graph. b) Is there any externality in this market? If yes, is it negative or positive?

The demand and supply curves of fire extinguishers are given by Qa= 10,000 - 10P and Qs = 15P, respectively. Each fire extinguisher bought by consumers causes an external benefit of $4 (external benefit from consumption). The production process of fire extinguishers does not have any impact on bystanders in the economy. a) Without any consideration of the externality, how much are the market-equilibrium price and quantity of fire extinguishers? Depict this market equilibrium on a graph. b) Is there any externality in this market? If yes, is it negative or positive?

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...

See similar textbooks

Similar questions

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.
Please answer the following questions.1. Explain the factors affecting Demand.2. Explain the difference between positive and negative externalities alongwith an example.3. How are public goods different from private goods?4. Explain the Law of Supply.5. With regard to demand and Supply, explain the point of MarketEquilibrium.
Externalities - Definition and examples An externality arises when a firm or person engages in an activity that affects the wellbeing of a third party, yet neither pays nor receives any compensation for that effect. If the impact on the third party is adverse, it is called a ___________ externality. The following graph shows the demand and supply curves for a good with this type of externality. The dashed drop lines on the graph reflect the market equilibrium price and quantity for this good.
Assume the Senator asks you of the optimal policy to combat CO2 emissions (carbon emissions). The senator is interested in implementing a policy that will reduce emissions from the power sector. The demand for electricity is P = 20 - 2 x Q where Q is amount of electricity demanded, and P is the price of electricity in MWh. The marginal cost of producing electricity is MC = 2 x Q And the damage caused by pollution is MEC = QWhat is the equilibrium price to consumers under competition
Use the following information to answer Questions 1 - 4: In a competitive market for fresh lemonade, the market demand for 12-ounce servings is QD = 100 – 10P and the market supply is QS = 15P. Calculate the competitive market equilibrium price. Calculate the competitive market equilibrium quantity. Calculate Total Surplus at the competitive market equilibrium. Now suppose that the production of lemonade caused a costly negative externality on innocent bystanders (e.g., squirted acidic lemon juice in their eyes). Given the externality, would the unregulated market price of lemonade from 1 be efficient? If not, is it too high o too low?
Consider the above graph. Is there an externality present in this market? If so, what kind? No, there is no externality. Yes, a negative externality. Yes, a positive externality.
If a competitive market is characterized by a negative externality, then which of the following statements is true Question 5Answer a. Social surplus is less than market surplus b. Social surplus is equal to market surplus c. Social surplus may be greater than or less than market surplus, depending on the size of the externality d. Social surplus is greater than market surplus
own experiences to describe when you were part of a transaction that resulted in a positive externality, b. State why the transaction resulted in a positive externality, c. State why from an economist's viewpoint this would be considered market inefficiency.
What are (environmental) externalities? Explain one example from production/consumption condition that would result in negative externalities
Let the supply and demand for widgets be given by the following schedule. Price: 3, 4, 5, 6, 7, 8, 9, 10, 11 Quantity Supplied: 100, 200, 300, 400, 500, 600, 700, 800, 900 Quantity Demanded: 900, 800, 700, 600, 500, 400, 300, 200, 100 a. What quantity will be produced here? b. What quantity is efficient if there are no external costs or benefits? c. What quantity is efficient if there is an external cost of $6 per unit from pollution caused by the widget factories?
Consider the market illustrated in the figure to the right. Supply curve Upper S 1 represents the private cost of production and demand curve Upper D 1 represents the private benefit from consumption. Suppose production of this good creates a negative externality... Show how the externality affects the market. 1.) Use the line drawing tool to draw either a new supply (Upper S 2) or demand (Upper D 2) curve incorporating the negative externality in production . Properly label this line. 2.) Use the point drawing tool to indicate the market equilibrium price and quantity. Label this point 'Market equilibrium'. 3.) Use the point drawing tool to indicate the efficient equilibrium price and quantity. Label this point 'Efficient equilibrium'. Carefully follow the instructions above, and only draw the required objects.
Assume a market for fertilizers, and let D denote the demand of fertilizers while S their supply. The inverse demand is p = 10 - q, and the supply is MC = q. The marginal damage created by runoff water being exposed to fertilizers is MEC = q/2 The use of fertilizers is creating an externality and the government wishes to intervene in the market. Use a figure to depict the competitive outcome. Derive the competitive equilibrium outcome. Use a second figure to explain the negative externality attributed to the use of fertilizers. The use of fertilizers improves yield, but it also damages the underground aquifer. What is the Pigovian Tax? Use a figure to explain. Can it be used to correct for the externality? Derive the Pigovian tax and characterize the social optimum solution. Can a standard achieve the social optimum? What about a quota? Explain using a figure. Explain and show step-by-step for last two questions please!