Essentials of Economics (MindTap Course List)
8th Edition
ISBN: 9781337091992
Author: N. Gregory Mankiw
Publisher: Cengage Learning
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Question
Chapter 11, Problem 8PA
To determine
The negative externality.
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There is often litter along highway but rarely in peoples yards. Provide an economic explanation for this fact.
Cars impose many external costs on society: carbon dioxide emissions that contribute to air pollution, congestion on roadways, and so on. Therefore, the market equilibrium quantity of cars is not equal to the socially optimal quantity. The following graph shows the demand for cars (their private value), the supply of cars (the private cost of producing them), and the social cost of cars (the private cost and external costs).
Consider a small town with a factory that produces cell phones. The factory's production causes air pollution, which affects the health of the residents. Draw a graph representing the market for cell phones in this town. Label the socially optimal level of output and the market equilibrium level of output. Explain the difference between the two levels.
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Essentials of Economics (MindTap Course List)
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- Studies have shown that people have a high value for beautiful architecture, What are some solutions to increasing the supply of beautiful architecture to the socially optimal level?arrow_forwardMike, Rosie, and Shobber live in separate houses along a dark and windy road. The following represent their marginal benefits for street lights: MBMike=200-2QM MBRosie=100-QR MBShobber=100-2QS where QM represents the quantity of street lights consumed by Mike, QR is the quantity of street lights consumed by Rosie and QS is the quantity of street lights consumed by Shobber. The Mayor of their town considers street lights to be a public good and is charged with purchasing the optimal number of street lights from Boone’s Light Shop. Boone’s is willing to sell street lights for $150 per light. b. What quantity of street lights should the Mayor purchase? Why? Suppose the Mayor is able to implement a pricing scheme to charge users for the illumination services. c. How much should each individual be charged? Does the tax revenue cover the total cost of providing the optimal number of streetlights?arrow_forwardThe market for a particular chemical, called Dexzon, is described by the following equations: • Demand: QD = 100 – 5P • Supply: QS = 5P where Q is measured in ounces of Dexzon and P is price in dollars per ounce. For each ounce of Dexzon produced, 1 unit of pollution is released into the environment. The external cost of the pollution is estimated to be $4 per ounce of Dexzon produced. a) Draw a diagram to illustrate the market for Dexzon described above. On your diagram, clearly indicate the market equilibrium, the efficient equilibrium and the price and quantity at each of these equilibria. b) On your diagram in a), shade the area that corresponds to the deadweight loss. c) Compute consumer surplus, producer surplus and total surplus both in the market equilibrium and in the efficient equilibrium. What is the size of the deadweight loss?arrow_forward
- A firm has 20 employees, each of whom desires a more pleasant work environment. Accordingly, they are considering planting shrubs near the firm’s parking lot. Each employee has an inverse demand for shrubs of P = 10 − Q, where Q is the number of shrubs. The marginal cost of planting shrubs is $20 each. 1. What is the socially efficient quantity of shrubs to plant? 2. How much would each person have to pay per shrub to achieve the efficient quantity? 3. How many shrubs are likely to be planted? Why?arrow_forwardEfficiency in the presence of externalities Air horns impose many external costs on society: the risk of being deafened, the annoyance of being awakened in the middle of the night, and so on. Therefore, the market equilibrium quantity of air horns is not equal to the socially optimal quantity. The following graph shows the demand for air horns (their private value), the supply of air horns (the private cost of producing them), and the social cost of air horns, including both the private cost and external costs. Use the black point (plus symbol) to indicate the market equilibrium quantity. Next, use the purple point (diamond symbol) to indicate the socially optimal quantity.arrow_forward
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