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- Define negative and positive externalities and their effect on resource allocation.Which of the following is not a characteristics of public goods Select one: A) Goods are divisible B) Non-excludability C) Goods are indivisible D) Non Rivalry The entire set of Poreto-optimal allocation in the Edgeworth Box is colled the Select one a) Poreto curve b) Edgeworth curve C) Contract ourve d )Wolras curveFor the following pair of parameter and choice variable indicate whether the relationship is positive, negative, ambiguous, or no effect. Explain in a sentence or two. Cordon pricing and Congestion externality
- Define negative and positive externalities and analyze their effect on resource allocationsPublic Goods. Suppose a neighborhood in Segovia’s central business area is deciding how many fountains they want to see in the main avenue. There is a first group of 20 neighbors and each has a demand Q = 20 − P for fountains. There is a second group of 5 people, and each has a demand Q = 20 − 2P for fountains. The cost of building each fountain is 225. How many fountains are socially optimal? Fountains are public goods. Hint: To obtain the SMB, please first transform the demand functions into “public goods’ valuations” (“isolate P”) and then multiply them by the amount of neighbors per group. Then you can proceed with the vertical summation.Q.2 How can we achieve pareto efficient allocation in case of consumption externality? Explain with an example.
- 1. During the winter break, Sam decides to go for a skiing vacation in Aspen instead of taking piano lessons. The opportunity cost of the skiing vacation is the:cost of accommodation and food in Aspen.value of piano lessons.cost of buying a piano.amount paid to the skiing instructor. 2. Which of the following is an example of a negative externality?Smith reducing the consumption of imported wine following an increase in the price of imported winePhoebe refusing to contribute to the building of a children’s park in her neighborhoodChristina accepting a payment in cash rather than in check for her laundry servicesTom playing music loudly in his room, disturbing his roommate who has an exam the next day3. A perfectly competitive firm sells 10 units of Good X at a price of $2 per unit. It incurs a fixed cost of $5 and a variable cost of $40 to produce the good. Which of the following is true?The firm should operate in the short run but shut down in the long run.The marginal cost…Problems and Applications Consider two types of cars: gasoline-powered cars and electric cars. Because conventional gasoline-powered cars burn fuel during their operation, people who drive gasoline-powered cars impose a externality on the society. A policy implication of this result is a those who drive gasoline-powered cars. Because electric cars help reduce greenhouse gas emissions, people who drive electric cars impose a externality on the society. A policy implication of this result is a those who drive electric cars.Externalities are a form of market failure. Identify two externalities related to Covid-19, one positive and one negative. Graph and explain how each externality affects the optimal amount of the good that is generating the externality.
- Distinguish the true statements from the false statements. True False Market failure occurs when negative externalities are present but not when positive externalities are present. The government sometimes intervenes when a market failure occurs. Externalities are the only example of market failure. Market failure occurs when either negative or positive externalities are present. Market failure is when a market provision of a good result in an inefficient quanitity.Acceptable social norms and social recognition act like corrective taxes and subsidies. Social norms act as a corrective tax by discouraging people from partaking in an action that will cause a negative externality by fear or shame of being judged harshly by others in society. Likewise social recognition can act as a corrective subsidy and cause people to partake in more activities that will create positive externalities. Classify the following examples of social norms by whether the behavior is undertaken to avoid society's judgement, i.e., working as a corrective tax, or to receive social recognition, i.e., working as a corrective subsidy. Corrective Tax Corrective SubsidyConsider the model of a rational consumer that cares about consumption of private goods and consumption of broadcast public television (a public good). Suppose that the total level of broadcast public television provided through voluntary contributions is 10 hours of programming. Then the government decides to raise money through a tax and provide 10 hours of programming to the public. What would we predict about crowd-out of voluntary contributions to broadcast public television when government does this? How would the answer change if consumers get warm glow utility from donating to broadcast public television in addition to utility from the public television itself? (Be specific.)
