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
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- 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!arrow_forwardThere are two consumers of mosquito abatement (a public good), Dave and Lilly. Dave’s benefit from mosquito abatement is given by ??? = 100 − ?, where Q is the quantity of mosquito abatement. Lilly’s benefit is given by ??? = 60 − ?.a. Calculate the total marginal benefit, ???.b. Suppose that mosquito abatement can be provided at a marginal cost of ?? = 2?. Find the socially optimal level of abatement. c. If mosquito abatement is privately supplied, what quantity will be supplied by Dave, and what quantity will be supplied by Lilly? Briefly explain.arrow_forwardSuppose that speeding imposes externalities on other people resulting in a social cost of $50. A town is considering hiring an extra police officer to give out speeding tickets. If we want to maximize social welfare (absent enforcement costs), which of the following statements are true? (Assume risk neutral drivers.) What happens to the socially optimal cost of the speeding ticket if the town decides to hire the police officer? a) It goes down b) It goes up c) The amount that it goes down depends on salary of the police officer d) The amount if goes up depends on the salary of the police officer e) None of the abovearrow_forward
- a) What is meant by Pareto efficiency in economics? Explain. b) List two examples of market failures that are relevant for environmental economics.arrow_forwardSylvester and Rachel live together on an island with two goods, food and shelter. Food is a private good and shelter is a public good. The utility function of Sylvester is U= Fs + 2(Zs + Zr) where Fs is the amount of food he buys, Zs is the amount of shelter he buys and Zr is the amount of shelter Rachel buys. Similarly, the utility function of Rachel is U= Fr + Zs + Zr where Fris the amount of food she buys. Suppose the price of food is 10 and both Sylvester and Rachel have 100 to spend. Suppose also that it is not possible for Sylvester and Rachel to reach any kind of agreement. a. Determine the quantity of shelter they will buy and the efficient quantity of shelter if the price of shelter is 5? (Enter your answer in whole number.) Quantity of Shelter: 120 units Efficient b. What is the quantity of shelter they will buy if the price of the shelter is 15? (Round your answer to 2 decimal places (e.g., 32.16).) Quantity of Shelter: 30 units Not Efficient c. What is the quantity of…arrow_forwardScenario 4 Suppose there are two residents in a neighborhood, Tana and Jason. Tana's demand for clean streets is Q = 100 – 4P. Jason's demand for clean streets is Q = 80 – 2P. If your answer is not a whole number, please make sure to round to the nearest hundredth. Refer to Scenario 4. Find the social demand curve for clean streets in this neighborhood. What is the y-intercept of the social demand curve? (Do not enter a dollar sign in your answer)arrow_forward
- Question 17 Suppose Margaret and Thomas are the only two homeowners in the neighborhood. Margaret's demand for clean streets is Q = 50 - 2P. Thomas's demand for clean streets is Q = 40 - P. If the marginal cost of cleaning the streets is $35. The socially optimal number of clean streets is 20 streets. (Note: this should a numerical answer) Margaret will pay $ Thomas will pay $ for cleaning the streets. for cleaning the streets.arrow_forwardWhich of the following policies could help the government achieve the efficient outcome? Check all that apply. Introduce emission taxes Offer a subsidy to consumers equal to the vertical distance between the marginal private benefit curve and the marginal social benefit curve Implement tradable pollution permits Offer a subsidy equal to the price at the efficient outcome Offer a subsidy to producers equal to the vertical distance between the marginal private benefit curve and marginal social benefit curvearrow_forwardParks confer many external benefits on society: open space, trees that reduce pollution, and so on. Therefore, the market equilibrium quantity of parks is not equal to the socially optimal quantity. The following graph shows the demand for parks (their private value), the supply of parks (the private cost of producing them), and the social value of parks, including both the private value and external benefits. 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
- Mike, 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_forwardParks confer many external benefits on society: open space, trees that reduce pollution, and so on. Therefore, the market equilibrium quantity of parks is not equal to the socially optimal quantity. The following graph shows the demand for parks (their private value), the supply of parks (the private cost of producing them), and the social value of parks, including both the private value and external benefits. 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. (?) Supply (Private Cost) Market Equilibrium Socially Optimal Level Social Value Demand (Private Value) QUANTITY OF PARKS PRICE OF PARKSarrow_forwardScenario 4 Suppose there are two residents in a neighborhood, Tana and Jason. Tana's demand for clean streets is Q = 100 – 4P. Jason's demand for clean streets is Q = 80 – 2P. If your answer is not a whole number, please make sure to round to the nearest hundredth. Refer to Scenario 4. Find the social demand curve for clean streets in this neighborhood. What is the slope of the social demand curve? and what is the socially optimal number of clean streets if the marginal cost of cleaning them is $95?arrow_forward
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