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Principles of Microeconomics

7th Edition
N. Gregory Mankiw
ISBN: 9781305156050

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BuyFindarrow_forward

Principles of Microeconomics

7th Edition
N. Gregory Mankiw
ISBN: 9781305156050
Textbook Problem

Greater consumption of alcohol leads to more motor vehicle accidents and, thus, imposes costs on people who do not drink and drive.

a. Illustrate the market for alcohol, labeling the demand curve, the social-value curve, the supply curve, the social-cost curve, the market equilibrium level of output, and the efficient level of output.

b. On your graph, shade the area corresponding to the deadweight loss of the market equilibrium. (Hint: The deadweight loss occurs because some units of alcohol are consumed for which the social cost exceeds the social value.) Explain.

Subpart (a):

To determine
Optimum quantity and equilibrium quantity of output in the alcohol market.

Explanation

Figure 1 shows the market for alcohol.

Figure 1

In Figure 1, the vertical axis measures the price of alcohol and the horizontal axis measures the quantity of alcohol.  Here, the optimum quantity of output is the level of output where the demand curve is equal to the social co...

Subpart (b):

To determine
Optimum quantity and equilibrium quantity of output in the alcohol market.

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