Microeconomics
13th Edition
ISBN: 9781337617406
Author: Roger A. Arnold
Publisher: Cengage Learning
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Chapter 17, Problem 3QP
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The Coase theorem states that
if transactions costs are low, property rights are assigned, and parties understand how much they value something, private bargaining will result in an efficient solution to the problem of externalities.
government intervention is always needed if externalities are present.
a free market equilibrium is the best solution to address externalities.
assigning property rights is the only thing the government should do in a market economy.
Suppose a positive externality is associated with college enrollment. Assume that college instruction is sold in a competitive market and that the marginal social cost of providing it increases with enrollment. Show how a corrective subsidy to college students will increase the market price of instruction. Show the net gain in well-being possible from the subsidy and the amount of tax revenue required to finance its costs on your graph.
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which statement is true
In the absence of market power and externalities, efficiency is achieved in a market when the sum of producer surplus and consumer surplus is maximized.
The benefit received by sellers in a market is measured by producer surplus and producer surplus is calculated as the amount sellers receive for their product minus the cost of production.
In a market, the marginal buyer is the buyer who would be the first to leave the market if the price were any higher.
Moving production from a high-cost producer to a low-cost producer will decrease total surplus.
Suppose the United States changed its laws to allow for the legal sale of a kidney and the government allowed a free market in organs for transplant then there would be a decrease in the price of a kidney and an increase in the shortage of kidneys for transplant.
Total surplus in the market is the summation of consumer surplus and producer surplus and it is maximized at the market equilibrium in the absence of…
Chapter 17 Solutions
Microeconomics
Ch. 17.1 - Prob. 1STCh. 17.1 - Prob. 2STCh. 17.2 - Prob. 1STCh. 17.2 - Prob. 2STCh. 17.2 - Prob. 3STCh. 17.2 - Prob. 4STCh. 17.3 - Prob. 1STCh. 17.3 - Prob. 2STCh. 17.3 - Prob. 3STCh. 17.4 - Prob. 1ST
Ch. 17.4 - Prob. 2STCh. 17.4 - Prob. 3STCh. 17.5 - Prob. 1STCh. 17.5 - Prob. 2STCh. 17.5 - Prob. 3STCh. 17 - Prob. 1QPCh. 17 - Prob. 2QPCh. 17 - Prob. 3QPCh. 17 - Prob. 4QPCh. 17 - Prob. 5QPCh. 17 - Prob. 6QPCh. 17 - Prob. 7QPCh. 17 - Prob. 8QPCh. 17 - Prob. 9QPCh. 17 - Prob. 10QPCh. 17 - Prob. 11QPCh. 17 - Prob. 12QPCh. 17 - Economists sometimes shock noneconomists by...Ch. 17 - Prob. 14QPCh. 17 - Prob. 15QPCh. 17 - Prob. 1WNGCh. 17 - Prob. 2WNGCh. 17 - Prob. 3WNG
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- (Optimal Provision of Public Goods) Using at least two individual consumers, show how the market demand curve is derived from individual demand curves (a) for a private good and (b) for a public good. Once you have derived the market demand curve in each case, introduce a market supply curve and then show the optimal level of production.arrow_forwardWhich of the following statements are true? (more than once could be correct, deductions for incorrect answers). A. Perfectly competitive markets with many buyers and sellers can normally internalize externalities via natural market forces and therefore do not normally call for policy intervention. B. Negative externalities cause too much production and consumption of a good relative to the social optimum while positive externalities cause too little production and consumption of a good relative to the social optimum. C. Negative externalities cause too little production and consumption of a good relative to the social optimum while positive externalities cause too much production and consumption of a good relative to the social optimum. D. Both positive and negative externalities in an otherwise perfectly competitive market cause deadweight loss. E. Negative externalities in otherwise perfectly competitive markets cause deadweight loss while positive externalities actually improve…arrow_forwardGoods that are accompanied by negative externalities are priced lower than is socially ideal. But, oddly, goods that are accompanied by positive externalities are also priced lower than is socially ideal. Explain this apparent paradox.arrow_forward
- Illustrate the efficient provision of a public good regarding partial equilibrium analysis.arrow_forwardShow how a tax or subsidy can be used to counteract an externality,and discuss the pros and cons of such a solution.arrow_forwardIn the presence of market failure ,the argument for government intervention is only compelling but not always beneficial. True or false, and explainarrow_forward
- Education confers many external benefits on society: a higher-paid workforce, more technological innovation, a more informed electorate, and so on. Therefore, the market equilibrium quantity of education is not equal to the socially optimal quantity. The following graph shows the demand for education (its private value), the supply of education (the private cost of producing it), and the social value of education, 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_forwardConsider agent A with (inverse) demand curve for the public good Pa = 60 - 2Qa and agent B with inverse demand Pb = 90 - 5Qb , where prices are measured in £ per unit. The marginal cost of producing the public good is £10 per unit. What is the Pareto efficient level of the public good? Explain. Illustrate in a graph.arrow_forwardMark the correct answer(s) d. Heterogeneity leads to more infomation that a consumer has to collect before being able to make a rational decision. e. If one market side has more information than the other side, economist name this situation as asymmetric information. f. Negative external effects lead to a higher than optimal market quantity. g. Competitive markets are assumed to have total transparency and information. h. Most markets do not produce or trade homogeneous, but heterogeneous goods. i. Akerlof's lemon market model and the solutions show that goverment does not always have to intervene to keep the market working in case of asymmetric information. j. Positive external effects do not need a corrective intervation. Please answer all with short explanationarrow_forward
- Give an ideal example of a positive (consumption) externality which leads to a market failurearrow_forwardProvide the correct answer please ... If there are no externalities a competitive market achieves economic efficiency. If there is anegative externality, economic efficiency will not be achieved because a. too much of the good will be produced. b.a deadweight loss will occur that is equal to the area under the demand curve for the good. c.too little of the good will be produced. d.economic surplus is maximized.arrow_forwardSuppose a firm is able to dump toxic chemicals into a river next to its factory, which poisons wildlife and harms the health of nearby residents who have no business with the company. This scenario is characterized by which is an example of an externality, market failure market power; market failure market power; welfare an externality; welfarearrow_forward
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