Question

4. Efficiency in the presence of externalities 

Parks confer many external benefits on society: open space, trees that reduce pollution, and so on. Therefore, the market equilibrium quantity of parks is not equal to the socially optimal quantity. The following graph shows the demand for parks (their marginal private benefits), the supply of parks (the marginal private costs of producing them), and the marginal social benefits of parks, including both the marginal private benefits 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. Finally, use the grey polygon (star symbol) to indicate the area representing market failure. 

Which of the following policies could help the government achieve the efficient outcome? Check all that apply. 

Introduce emission taxes 

offer a subsidy equal to the price at the efficient outcome 

Offer a subsidy to producers equal to the vertical distance between the marginal private benefits curve and marginal social benefits curve 

Implement tradable pollution permits 

Offer a subsidy to consumers equal to the vertical distance between the marginile private benefits curve and the marginal social benefits curve

Answer 1

Answer 2

Sorry my work didn't have those questions at the bottom but here is the graph

Answer 3

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Answer 4