Table 12.12, shows the
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- The table below shows the supply and demand conditions for a firm that will play trumpets on the streets when requested. Qs1 is the quantity supplied without social costs. Qs2 is the quantity supplied with social costs. How does accounting for the externality affect the equilibrium price and quantity? Price Qd Qs1 Qs2 $20 0 10 8 $18 1 9 7 $15 2.5 7.5 5.5 $12 4 6 4 $10 5 5 3 $5 7.5 2.5 0.5 What is the negative externality in this situation? Identify the equilibrium price and quantity when we account only for private costs. Identify the equilibrium price and quantity if we are able to account for social costs. Does it make sense that accounting for the negative externality results in a higher price? Explain your answer.arrow_forwardRefer to the following table. The externality created by the production of refrigerators was $100. However, once both the private and additional external costs were taken into consideration, the market price increased by only $50. If the external costs were $100 why did the price only increase by $50 when all the costs were taken into account? Price = $600, $650, $700, $750, $800, $850, $900 Quantity Demanded = 50,000, 45,000, 40,000, 35,000, 30,000, 25,000, 20,000 Quantity Supplied before Considering Pollution Cost = 40,000, 45,000, 50,000, 55,000, 60,000, 65,000, 70,000 Quantity Supplied after Considering Pollution Cost = 30,000, 35,000, 40,000, 45,000, 50,000, 55,000, 60,000arrow_forwardThe supply and demand conditions facing a firm that makes widgets and generates a negative externality by dumping a highly toxic sludge in a nearby river is given in the table below. Price Quantity Demanded Quantity Supplied without Paying Social Costs Quantity Supplied after Paying Social Costs 100 0 120 75 80 10 100 50 55 30 90 30 40 55 85 25 30 80 80 20 20 100 65 15 The equilibrium price and quantity when social costs are taken into account are Question 12 options: Price = $55, Quantity = 30 Price = $40, Quantity = 55 Price = $30, Quantity = 20 Price = $30, Quantity = 80arrow_forward
- Can you answer this?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_forward42. Table 12.12, shows the supply and demand conditions for a firm that will play trumpets on the streets when requested. Qs, is the quantity supplied without social costs. Qs2 is the quantity supplied with social costs. What is the negative externality in this situation? Identify the equilibrium price and quantity when we account only for private costs, and then when we account for social costs. How does accounting for the externality affect the equilibrium price and quantity? P Qd Qs1 Qs2 $20 10 8 $18 1. 9 7 $15 2.5 7.5 5.5 $12 4 6 4 $10 5 3 $5 7.5 2.5 0.5 Table 12.12arrow_forward
- Consider the market for electricity. Suppose that a power plant dumps byproducts into a nearby river, creating a negative externality for those living downstream from the plant. Producing additional electricity imposes a constant per-unit external cost of $700. The following graph shows the demand (private value) curve and the supply (private cost) curve for electricity. Use the purple points (diamond symbol) to plot the social cost curve when the external cost is $700 per unit. PRICE (Dollars per unit of electricity) 2000 1800 1600 1400 1200 1000 800 600 400 200 O 1 4 5 QUANTITY (Units of electricity) 2 3 The market equilibrium quantity is 3.5 6 Supply (Private Cost) Demand (Private Value) Social Cost (?) units of electricity, but the socially optimal quantity of electricity production is To create an incentive for the firm to produce the socially optimal quantity of electricity, the government could impose a subsidy units. of $500 perarrow_forwardUse the table below to answer the questions: A. Find the equilibrium price, assuming sellers ignore negative externalities. B. Find the equilibrium quantity, assuming sellers ignore negative externalities. C. Find the optimal price, including external costs. Find the optimal quantity, including external costs.arrow_forwardSuppose that in greater Sydney, the demand for flowering plants is given by P = 60 – Q, and supply is given by P = 0.2Q, where Q represents thousands of plants. Because people enjoy seeing flowers as they pass by others’ houses, these plants produce a positive externality. Suppose that each plant produces a marginal external benefit equal to $6. What will be the market price and the quantity supplied of flowering plants? What is the socially optimal number of plants? Calculate the lost economics surplus associated with the competitive market outcome. How would you suggest that the government correct the inefficiency caused by this externality?arrow_forward
- Consider the market for electricity. Suppose that a power plant dumps byproducts into a nearby river, creating a negative externality for those living downstream from the plant. Producing additional electricity imposes a constant per-unit external cost of $240. The following graph shows the demand (private value) curve and the supply (private cost) curve for electricity. Use the purple points (diamond symbol) to plot the social cost curve when the external cost is $240 per unit. PRICE (Dollars per unit of electricity) 800 720 640 560 480 400+ 320 240 Supply (Private Cost) Demand (Private Value) 160 [- 80 0 0 1 2 3 4 5 6 7 QUANTITY (Units of electricity) Social Cost ? The market equilibrium quantity is units of electricity, but the socially optimal quantity of electricity production is units. To create an incentive for the firm to produce the socially optimal quantity of electricity, the government could impose a unit of electricity. of perarrow_forwardCan you answer this?arrow_forwardConsider 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.arrow_forward
- Principles of Economics 2eEconomicsISBN:9781947172364Author:Steven A. Greenlaw; David ShapiroPublisher:OpenStaxExploring EconomicsEconomicsISBN:9781544336329Author:Robert L. SextonPublisher:SAGE Publications, IncEconomics (MindTap Course List)EconomicsISBN:9781337617383Author:Roger A. ArnoldPublisher:Cengage Learning