Explanation The following table shows the marginal social cost at every level of quantity of water: Quantity of Water (Gallons per day) Marginal External Cost Marginal Cost Marginal Social Cost Marginal Social Benefit 10 $1 $5 $6 $10 20 $2 $5 $7 $9 30 $3 $5 $8 $8 40 $4 $5 $9 $7 50 $5 $5 $10 $6 60 $6 $5 $11 $5 70 $7 $5 $12 $4 The following graph plots the above provided table and shows the price of ITQ:

The market price of an ITQ is to be explained.

Foundations of Economics (8th Edition)

8th Edition

ISBN: 9780134486819

Author: Robin Bade, Michael Parkin

Publisher: PEARSON

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Question

Chapter 11, Problem 7IAPA

To determine

The market price of an ITQ is to be explained.

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Chapter 11, Problem 6IAPA

Chapter 11, Problem 8IAPA

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Show the market for cigarettes in equilibrium, assuming that there are no laws banning smoking in public. Label the equilibrium private market price and quantity as Pm and Qm. Add whatever is needed to the model to show the impact of the negative externality from second-hand smoking. (Hint: In this case it is the consumers, not the sellers, who are creating the negative externality.) Label the social optimal output and price as Fe and Qe. On the graph, shade in the deadweight loss at the market output.
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.
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?
A country called Sherwood is very heavily covered with a forest of 50,000 trees. There are proposals to clear some of Sherwoods forest and grow com, but obtaining this additional economic output will have an environmental cost from reducing the number of trees. Table 12.11 shows possible combinations of economic output and environmental protection. Sketch a graph of a production possibility frontier with environmental quality on the horizontal axis, measured by the number of trees, and the quantity of economic output, measured in corn, on the vertical axis. Which choices display productive efficiency? How can you tell? Which choices show allocative efficiency? How can you tell? In the choice between T and R, decide which one is better. Why? In the choice between T and S, can you say which one is better, and why? If you had to guess, which choice would you think is more likely to represent a command-and-control environmental policy and which choice is more likely to represent a market-oriented environmental policy, choice Q or S? Why?

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