This answer talks about the impact of different types of externalities in production and consumption on socially optimal and monopoly outcome.
2. Consider a downward-sloping market demand and an upward-sloping marginal cost. For each of the following...
1. For each of the following situations draw the Demand and Supply for a competitive market. Show the Social Marginal Benefit and Social Marginal Cost curves and explain whether the presence of the externality leads to a competitive market equilibrium with too much or too little production relative to the socially optimal outcome. (a) A negative externality associated with production. (b) A negative externality associated with consumption (c) A positive externality associated with consumption. 2. Consider a downward-sloping market demand...
We are considering a market with marginal cost of P=100+2Q and a demand of P=500-2Q. Use that information to answer the following questions. a. Find the market equilibrium (price and quantity in the market). b. Find producer and consumer surplus. c. Now imagine production of this good created a negative externality of 1$ per unit of output. Find the socially optimal outcome (price and quantity) taking this externality into account. d. Find consumer and producer surplus at the socially efficient...
Assume that the marijuana market is a single-price monopoly where market demand is linear and downward-sloping and the suppliers' marginal cost is upward sloping This question is about market structure a. Before legalization, we described the market as a monopoly. Justify this assumption. b. How might legalization change the market structure of marijuana? That is, before legalization, the market was described as monopoly, but how will this change with legalization and why? Assume that the marijuana market is a single-price...
3. The demand in a market is Q (P) 150-3P. The supply in the market is QS(P)- 3P- 30 (a) Find the competitive equilibrium in the market (P*, Q*) (b) Determine the levels of Consumer, Producer and Total Surplus in the competitive equilibrium (c) Consumption of the good leads to a negative externality. The external marginal benefit function is mbeQw . Draw a graph that shows the Demand, Supply and the Social Marginal Benefits. where measures units consumed in the...
Assume that the marijuana market is a single-price monopoly where market demand is linear and downward-sloping and the suppliers' marginal cost is upward sloping The state government tells you that the alcohol (i.e., liquor, wine and beer) industries have expressed concern about the legalization of marijuana and how this might affect their sales. Explain to the state government why the alcohol industry might be concerned about their sales. Assume that the marijuana market is a single-price monopoly where market demand...
Firms with market power a. face downward sloping average cost curves. b. face downward sloping marginal cost curves. c. produce where P = MR = MC. d. maximize profit but fail to maximize social surplus.
= 18 - 1. Suppose we realize that the market described in question 1 (Market demand is still Q P) has a negative externality. The cost function Cp(Q) = { Q2 is private cost. We now know the cost of the externality is Ce(Q) = Q2. a. What is the marginal cost of the externality, MCE? b. What is the marginal cost to society of production MCs? c. What is the Socially Optimal quantity and price? d. How does the...
6. (16 points) Suppose we realize that the market described in question 1 (Market demand is still Q = 18 – P) has a negative externality. The cost function C(Q) = Q2 is private cost. We now know the cost of the externality is Ca(Q)=Q?. a. What is the marginal cost of the externality, MCE? b. What is the marginal cost to society of production MCS? c. What is the Socially Optimal quantity and price? d. How does the socially...
in a market with an upward sloping supply curve and a downward sloping demand curve, when there is an excess supply, a. b. c. The actual price must be higher that the equilibrium price. The actual price must be lower that the equilibrium price. The quantity demanded is higher than the equilibrium quantity.
Suppose there is a linear downward-sloping demand curve and a linear upward-sloping supply curve for some good. The price of a substitute good decreases and the price of an input to the production process also decreases. Both changes occur simultaneously. Graph the original demand and supply curves, and then graph new curves after the substitute good and input prices decrease. How will the equilibrium price and quantity change after the substitute and input prices decrease? Explain your answer in English...