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ECON MACRO (with MindTap Printed Access Card) (New, Engaging Titles from 4LTR Press)
6th Edition
ISBN: 9781337408738
Author: William A. McEachern
Publisher: Cengage Learning
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Question
Chapter 3, Problem 11P
To determine
The problems with letting the market determine the amount of a certain good to be produced if there is an external cost, or negative externality, associated with its production.
Introduction:
Externality is the cost or benefit of a commodity that affects neither the producer nor the consumer but the third party in a transaction. Example of such externalities is the air pollution created by
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Chapter 3 Solutions
ECON MACRO (with MindTap Printed Access Card) (New, Engaging Titles from 4LTR Press)
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- If there are no externalities or market power and all markets are in equilibrium, what conclusions can we draw from this in economic theory?arrow_forwardWhat is an externality? Provide two examples each of positive and negative externalities.arrow_forwardExternality is a problem that create market failure. How the externalities can be internalized to improve market efficiency?arrow_forward
- To produce honey, beekeepers place hives of bees in the fields of farmers. As bees gather nectar, they pollinate the crops in the fields, increasing the yields of these fields at no additional cost to the farmer. a) Is this an externality in consumption or production? b) Is this a negative or positive externality? c) If this externality is not internalized, would beekeepers produce more or less bees than socially optimal? Why? d) Suggest a market-based solution that would internalize the externality. In your answer, give reference to the social cost and social value curves. e) What might be a reasonable private solution to this externality and how might the solution be reached?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_forwardWhat is meant by "internalizing" an externality? How can a negative externality be internalized?arrow_forward
- What is an externality? Provide an example.arrow_forwardExternalities Do you think that there would be external effects associated with Water from a uranium mine leaking into Kakadu National Park? If so, what would be the nature of the external effects? Can you think of policies that might deal with each external effect (that is, improve social wellbeing)?arrow_forwardOffer an example of a good or service with a negative externality. What is the externality of the good or service you mentioned?arrow_forward
- 1.a. Suppose there is an external cost, or negative externality, associated with production of a certain good. What's wrong with letting the market determine how much of this good will be produced? List at leadsr one example of negative externalty. 1.b. The owner of a small pizzeria is deciding whether to increase the radius of delivery area by one mile. What considerations must be taken into account if such a decision is to increase profitability?arrow_forwardThe following graph represents the market for high-emissions cars. Answer this question assuming that the externality is not internalised. Which quantity is socially optimal (i.e. what is the efficient quantity)? What is the deadweight loss generated by the externality?arrow_forwardWhat are externalities?arrow_forward
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