Economics:
10th Edition
ISBN: 9781285859460
Author: BOYES, William
Publisher: Cengage Learning
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Question
Chapter 27, Problem 5E
To determine
To explain:
The result of reversing the private cost and
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Social efficiency requires that, if Q 1 units are bought and sold in a market, then the ____ of Q 1 equals the social marginal cost of Q 1.
A.
Pareto-efficiency
B.
social welfare
C.
social marginal benefit
D.
social net-gain
Suppose that there is an isolated market economy with just one good: money. The market has 1,000 partici- pants and the total value of money is $1 billion. Consider the following allocations.
(a) Every participant has $1 million.
(b) One person has $2 million, and everyone else has $500,000
(c) One person has $1 billion, everyone else has $0.
Which of the above allocations are Pareto optimal and which are not? Why?
In the production of Good A, there are spillover benefits accruing to the public who may or may not be consumers of Good A. At the market equilibrium, the social benefit is *
a. less than the social cost
b. greater than the social cost
c. equal to the social cost
d. Uncertain but definitely less than private benefit
e. Equal to private benefit
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- There are three consumers of a public good. The demands for consumers are as follows: p1 = 50 − G, p2 = 110 − G, p3 = 150 − G, where G measures the number of units of the good and ?? the price in dollars. The marginal cost of the public good is $190. Explain why the public good may not be supplied at all because of the free-rider problem. If the public good is not supplied at all, what is the size of the deadweight loss arising from this market failure?arrow_forwardwhich 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…arrow_forwardBecause the free market (competitive) equilibrium maximizes social efficiency, why would the government ever intervene in an economy?arrow_forward
- Explain the two causes of market failures. Given their definitions, could a market be affected by both types of market failures simultaneously?arrow_forwardQ1. 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 maximizedarrow_forwardConsider a situation in which two countries, Home and Foreign, can produce a good that is subject to external economies of scale. Assume that firms in both countries face the same average costs curve (AC), given by: AC = m + r/(s+q) where m=3, r=20, s=2 and Q indicates quantity. The demand curves are given by, respectively: Q= b - P for Home and, Q = b* - P for Foreign, where b=20 and b*=40 . Q indicates quantity and P indicates price. Answer the following questions: Plot the AC curve and the demand curve for both Home and Foreign in the same graph (put quantity in the x-axis and price and cost in the y-axis. (Please do not use python to plot the graph and would appreciate a picture of the graph). Assume that both countries are closed to international trade. Compute the equilibrium price and quantity in both countries. Assume that these two countries open to trade with each other. Which country will produce the good? Explain why. What are the benefits of international trade…arrow_forward
- Suppose five people have houses on the same small lane. They all individually benefit from regular maintenance of the lane. Their individual marginal benefit curves are P = 8 ― (1/10)Q, where P reflects a willingness to pay in thousands and Q is the length of the road repaired in ten-yard units. The cost of maintenance is $2,000 per ten yards. Suppose one person is currently the only one paying for maintenance. How much does this person buy, and what is the deadweight loss? Does anyone individually have an incentive to pay for additional maintenance, and why or why not?arrow_forwardSuppose there are two residents in a neighborhood, and you know both of their demand curves for a public good. What would you have to do in order to figure out what the social demand curve? A.Multiply the two demand curves together B.Add their demand curves together C.Subtract the demand of the person with the lower valuation of the public good from the demand of the person with the higher valuation of the public good D.Subtract the demand of the person with the higher valuation of the public good from the demand of the person with the lower valuation of the public goodarrow_forwardExplain how herd immunity of vaccinations creates a market inefficiency and how the government could intervene to achieve a socially efficient outcome. Use a fully labelled graph and verbal explanation in your answer and assume that the market for vaccines is perfect competition.arrow_forward
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