Question

P ($) ............... .. . a como ....... 0 1 2 3 4 5 6 7 8 9 10 The graph above shows a market with an externality. Refer to the graph to answer the following questions: • In this market the externality is • If the government does not interfere in the functioning of this market, the quantity traded in the market is and the price is $ • One way for the government to move the market to the efficient point is to implement a corrective in the amount of $ per unit. As a result of this intervention, the quantity traded would • and the price of the good would Check

Answer 1

a) The externality is positive or beneficial

b) Quantity = 3 and Price = 3

c) Corrective a subsidy in the amount of (6-3) = $3

d) Quantity = 4 and Price = 5