In Figure 17.3, the government may optimally regulate the paper market by taxing output. Given that the output tax remains constant, what are the welfare implications of a technological change that drives down the private marginal cost of production?
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- Assume that you have the following information about the individual demands for a public good:High income: Ph = 40 – 1 * QLow income: PL = 20 – 1 * QAssume further that there is a total of 3 people in the “high income” group and a total of 2 individuals in the “low income” group. Finally, assume that the marginal cost of producing the good is given by: MC = 5 * Q.What would be the demand function for the public good (in the form P = a - b * Q)?P = - _ *Q, if Q ≥ ___What is the efficient output level, Q*, of this public good? Q* = ___There three individuals each benefit from a public good. The marginal cost of the public good provision is fixed at $20 per unit: MC = $20Whereas each of the three individuals each receive a marginal benefit for each unit of the public good defined by: Person 1: MB1= 40 − 2Q Person 2: MB2= 30 − 2Q Person 3: MB3= 31 − Q They are non-rival, just like with public goods. Therefore, each person benefits from the overall quantity of Q purchased by everyone, not only from the value that they personally acquire.1. Draw a figure with all three MB curves, the MC curve, and the Social Marginal Benefit (SMB) Curve. Label all x-intercepts, y-intercepts, and kinks in the SMB curve.2. Given the above MB curves, write down the Social Marginal Benefit Curve as a function of Q. 3. What is the Socially Optimal Choice of Q and would any private individual purchase this on their own?The attached figure indicates the initial market for tertiary education in a country that pays a subsidy of $10 000 per year to each student enrolled in tertiary education. iI is assumed that assume that: 1) education was left to the competitive free market; 2) the marginal private benefit is equal to the marginal social benefit; 3) the marginal private cost is equal to the marginal social cost. Identify the area of the figure that depicts the total size of the subsidy paid by the government to the students enrolled in tertiary education. Who gains and who loses from such a subsidy?
- Given the position of the MSC curve, once can conclude that the PRICE OF x6009 P₁ P₁ P₂ P₁ 0 Q₁ Q₂ Q3 Marginal Social Cost Marginal Private Cost Marginal Social Benefit QUANTITY OF GOOD X O production of Good X occurs in an imperfectly competitive market O market quantity Q3 is the socially optimal quantity O production of Good X creates a negative externality O free market will produce too little of Good X private costs of producing Good X exceed the social cost of production at all levels of outputUniversity researchers create a positive externality because what they discover in their research labs can easily be learned by others who haven't contributed to the research costs. If there are no subsidies, what is the relationship between the equilibrium quantity of university research and the optimal quantity of university research produced? O The equilibrium quantity is greater than the socially optimal quantity O There is not enough information to answer this question O The equilibrium quantity is less than the socially optimal quantity O They are equal0 OEH O EL GK ODG Pric dy...a. K Am L In the above graph, the marginal social loss at the private market equilibrium is MSC MPC MSB = MPB Q of chemical solvents
- Assume that to balance the benefits of providing electricity with its pollution costs, A. Treehugger recommends that the government imposes a tax $0.04 for every kilowatt hour (kWh) of electricity sold. If they do, how much of this tax is actually paid by the customer (consumer’s burden) and how much is paid by the firm (producer’s burden)?Suppose the demand for standard sized bottled water in the US is Qd=120-30.5P where Qd is monthly quantity demanded in millions and P is the price per bottle in dollars and cents. If the marginal private cost (MPC) of producing the bottled water is one dollar, calculate the market equilibrium quantity. Explain what a constant marginal cost implies. Does that mean the total opportunity cost of producing bottled water is unrelated to how many are produced? Let’s assume that the marginal private benefit (MPB) of bottled water equals the marginal social benefit (MSB). Explain what that means. At the equilibrium calculated in part A, what do you know about buyers’ willingness to pay in each transaction?ABC limited faces Marginal cost function given by MC=0.2Q and it faces a perfectly competitive price of shs. 40 for its output. Calculate the ABC competitive output level Given that ABC is exerting a negative externality and its socil marginal cost of production is estimated to be MC= 0.4Q, if the market price remai the same at shs. 40. Calculate the socially optmal level of production for ABC if the government imposes an excersice tax to bring about optimal level of production, calculate the level of tax to be imposed and total tax revenue the government is expected to rise
- . Some dissenting scientists at Environment Canada disagree with the estimate of $1.50 for theenvironmental externality. They believe that the incidence of the externality is not constant acrossdifferent levels of production; instead the size of the externality is proportional to the level of output.That is, the larger is the output, the larger is the externality. Their research suggests that the truesocial cost of cereal production diverges from private costs at every level of production by an amountequal to ten percent of production (note: ten percent, not ten percentage points).The government would like to know the economic effects of implementing a tax to internalise theexternality in this case. Draw the diagram for this market and policy. Solve for all relevant Ps and Qs.Calculate producer surplus•Consider a product market with three consumers X, Y and Z with demand function QX = 6 – PX, QY = 3 – ½PY and QZ = 12 – PZ respectively, where P is the price in dollars and QX, QY and QZare the quantities demanded by Consumer X, Y and Z respectively. •If the product is public good, obtain the marginal social benefit function and draw the diagram. Determine the optimal quantity of the product in the market if the marginal cost of the product is constant at (a) $4, (b) $9 and (c) $16.a) If the only goal of a regulator of a natural monopoly firm that charges a uniform price is to ensure that the firm produces the socially optimal level of output, and the regulator has the authority to order the firm to do so, explain why this power could not be exercised when the viability of the firm is taken into account. b) Explain why a regulator, whose sole objective is to ensure that a monopoly firm produce the socially optimal output, would have no need to do anything if the firm were a perfectly discriminating monopoly. c) If the market demand curve is common knowledge for a natural monopoly firm and a regulator, but unlike the firm, the regulator has no information about the firm’s cost curves. Explain how a regulator could incentivize the firm to produce the socially optimal output, bearing in mind that the regulator does not even know which level of output is socially optimal?