Question

ICE 58: Part 2 (Bonus: 16 pts) Discussion Session #: First Name: Last Name: Q6: Consider the case of positive externalities in the diagrams below. There is a $3 external benefits between the social MB curve and the private MB curve. The intersection of S and private MB curve suggests that the market-based quantity is m, whereas the intersection of S and social MB curve dictates that the social optimal quantity is Qoc. H Before the Subsidy After the Subsidy GS S (MC) S (MC) A Social MB D (Private MB) Social MB = Private MB + Subsidy D (Private MB) : Qmkt Roc Qmkt Rºc (1a) (1b) (2 pts) Using the left diagram, identify the area representing the total benefit from consuming at the market-based quantity, Qmkt. Answer: (2 pts) Using the left diagram, identify the area representing the total cost from producing at the market-based quantity, Qmkt. Answer: (4 pts) Comparing your answers in (1a) and (1b), identify the net benefit from producing and consuming at the market-based quantity, Qmkt. Answer: (1c) (2 pts) Using the right diagram, identify the area representing the total benefit from consuming at the social optimal quantity, QSoc. Answer: (2b) (2 pts) Using the right diagram, identify the area representing the total cost from producing at the social optimal quantity, QSoc. Answer: (2c) (2 pts (2 pts) Comparing your answers in (2a) and (2b), identify the net benefit from producing and consuming at the social optimal quantity, soc. (Hint: a trapezoid and a triangle) Answer: (3) (2 pts) Comparing the net benefit from Q in (1c) and the net benefit from Qoc in (2c), what is NBSC - NBmkt (where NB denotes net benefit)? Answer:

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Answer 1

Total Benefit : EFGD Bmxt ] (16) Total cost : EFD ankt ] (16) Net Benefit: FGD ] (24) Total beradid : LEHB B soc ] (26) Total cost : LEFB & Soc ] (21) Net benefit ! LE HB (20) composing wet benefit: Dco