1: Why do externalities in a market result in market failure (i.e., the market outcome doesn’t...
1: Why do externalities in a market result in market failure (i.e., the market outcome doesn’t maximize the total social surplus)?
2: Argue for two specific goods that are currently or should have a Pigouvian tax or subsidy imposed on them. What is the externality that is (or should be) being corrected for?
Homework Answers
1. Externality is the costs or benefits of an economic transaction that falls on the third party who is not even involved in that production or Consumption process. Externality in a market causes market failure because due to externality, the price equilibrium of a product or service doesn't reflect the actual costs or benefits of that product or service.
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1: Why do externalities in a market result in market failure
(i.e., the market outcome doesn’t...
One implication of the Coase Theorem (per class discussion) O market failure is the primary cause of most externalities...
One implication of the Coase Theorem (per class discussion) O market failure is the primary cause of most externalities. "everyone is guilty" and that at least some of the "blame" for any of externality falls on all of the parties. a Pigouvian tax is usually the best approach to force internalization of externalities. the party that causes the externality is almost always guilty. QUESTION 12 In our our basic pollution reduction model in Chapter 5, with perfect knowledge a price...
Paragraph Styles Unit 8 - Market Failures: Externalities, public goods, natural resources The production of coffee...
Paragraph Styles Unit 8 - Market Failures: Externalities, public goods, natural resources The production of coffee pods results in environmental damages when consumers throw the pods away. Currently consumers are not responsible for the costs of disposing of these coffee pods. MSC MPC The environmental damages caused by throwing away the coffee pods is an example of a:1 Vertical (Value) Axis Major Gridlines a. Positive externality b. Negative externality c. Private costs d. Private benefits Consider the market for coffee...
Unit 8 Market Failures: Externalities, public goods, natural resources The production of coffee pods results in...
Unit 8 Market Failures: Externalities, public goods, natural resources The production of coffee pods results in environmental damages when consumers throw the pods away. Currently consumers are not responsible for the costs of disposing of these coffee pods. The environmental damages caused by throwing away the coffee pods is an example of a: a Positive externality (6. Negative externality c. Private cost d. Private benefit Consider the market for coffee in the graph to the right. 1. Left unregulated, what...
Questions 1. Give two examples of goods that are associated with positive externalities. Do not use...
Questions 1. Give two examples of goods that are associated with positive externalities. Do not use the examples given in your textbook. 2. Suppose production of a good results in a negative externality. a. What is the relationship between the social cost of the good and the private cost of the good? b. What is the relationship between the market quantity of the good and the socially efficient quantity? c. What is one way the government can intervene in the...
2. Which of the following is not a likely source of market failure? Asymmetric information Moral...
2. Which of the following is not a likely source of market failure? Asymmetric information Moral hazard Externalities Perfect competition 3. Which of the following categories most accurately describes the Social Security tax in the United States? Proportional Progressive Regressive Value-added tax 4. Which of the following best describes a progressive tax? A tax under which the percentage of income paid as tax increases as income increases A tax under which the percentage of income paid as tax decreases as...
Worksheet 3 Macroeconomics Ch. 5 Market Failures 1. Externalities. A study finds that leaf blowers make...
Worksheet 3 Macroeconomics Ch. 5 Market Failures 1. Externalities. A study finds that leaf blowers make too much noise, so the government imposes a $10 tax on the same of every unit to correct for the social cost of the noise pollution. The tax completely internalizes the externality. Before the corrective tax, Blown Away Manufacturing regularly sold blowers for $100. After the tax is in place, the consumer price for leaf blowers is $105. a. Describe the impact of the...
1. Pigovian Taxes Widgets are a necessary part of modern life, but they are also associated...
1. Pigovian Taxes Widgets are a necessary part of modern life, but they are also associated with considerable pollution and pollution-related externalities. Consider the private market for widgets described by the following private marginal benefit (MB) and private marginal cost (PMC) curves: ????= 100 − 0.15???? ??????= 4 + 0.06????. where ???? is the quantity demanded and ???? is the quantity supplied. Assume here that output (???? and ????) varies from 0 to 1000. After plotting these curves, use them...
6. Consider the following $10 subsidy for producers. Figure 3: A Per-Unit Subsidy of $10 SUPPLY...
6. Consider the following $10 subsidy for producers. Figure 3: A Per-Unit Subsidy of $10 SUPPLY SUPPLY (W 30 40 (a) What is the Producer Surplus under the subsidy? (5%) (b) What is the subsidy's Deadweight Loss? (5%) (c) What would the Total Surplus be under a free market? (5%) 1. The COVID-19 pandemic is, for all intents and purposes, causing a worldwide eco- nomic recession, with businesses shutting their doors and many people out of work. Consider the market...
68. Neighborhoods, condominiums and similar groupings of homes often have homeowner associations. These associations usually require...
68. Neighborhoods, condominiums and similar groupings of homes often have homeowner associations. These associations usually require homeowners to sign legally binding agreements that prevent them from certain behaviors, such as keeping farm animals as pets (horses and cows), running businesses out of their homes (think car repair), or parking their land yachts in their driveways. They do this because a. such behavior is thought to create an external benefit to others. b. such behavior raises the price for real estate...
1. Which of the following is most likely to result in a "free-rider" problem? Goods that...
1. Which of the following is most likely to result in a "free-rider" problem? Goods that are overpriced Goods that are nonexcludable Goods that are in limited supply Goods that are sold in monopoly markets 2. Which of the following is not a likely source of market failure? Asymmetric information Moral hazard Externalities Perfect competition 3. Which of the following categories most accurately describes the Social Security tax in the United States? Proportional Progressive Regressive Value-added tax 4. Which of...
One implication of the Coase Theorem (per class discussion) O market failure is the primary cause of most externalities. "everyone is guilty" and that at least some of the "blame" for any of externality falls on all of the parties. a Pigouvian tax is usually the best approach to force internalization of externalities. the party that causes the externality is almost always guilty. QUESTION 12 In our our basic pollution reduction model in Chapter 5, with perfect knowledge a price...
Paragraph Styles Unit 8 - Market Failures: Externalities, public goods, natural resources The production of coffee pods results in environmental damages when consumers throw the pods away. Currently consumers are not responsible for the costs of disposing of these coffee pods. MSC MPC The environmental damages caused by throwing away the coffee pods is an example of a:1 Vertical (Value) Axis Major Gridlines a. Positive externality b. Negative externality c. Private costs d. Private benefits Consider the market for coffee...
Unit 8 Market Failures: Externalities, public goods, natural resources The production of coffee pods results in environmental damages when consumers throw the pods away. Currently consumers are not responsible for the costs of disposing of these coffee pods. The environmental damages caused by throwing away the coffee pods is an example of a: a Positive externality (6. Negative externality c. Private cost d. Private benefit Consider the market for coffee in the graph to the right. 1. Left unregulated, what...
Questions 1. Give two examples of goods that are associated with positive externalities. Do not use the examples given in your textbook. 2. Suppose production of a good results in a negative externality. a. What is the relationship between the social cost of the good and the private cost of the good? b. What is the relationship between the market quantity of the good and the socially efficient quantity? c. What is one way the government can intervene in the...
Worksheet 3 Macroeconomics Ch. 5 Market Failures 1. Externalities. A study finds that leaf blowers make too much noise, so the government imposes a $10 tax on the same of every unit to correct for the social cost of the noise pollution. The tax completely internalizes the externality. Before the corrective tax, Blown Away Manufacturing regularly sold blowers for $100. After the tax is in place, the consumer price for leaf blowers is $105. a. Describe the impact of the...
6. Consider the following $10 subsidy for producers. Figure 3: A Per-Unit Subsidy of $10 SUPPLY SUPPLY (W 30 40 (a) What is the Producer Surplus under the subsidy? (5%) (b) What is the subsidy's Deadweight Loss? (5%) (c) What would the Total Surplus be under a free market? (5%) 1. The COVID-19 pandemic is, for all intents and purposes, causing a worldwide eco- nomic recession, with businesses shutting their doors and many people out of work. Consider the market...
68. Neighborhoods, condominiums and similar groupings of homes often have homeowner associations. These associations usually require homeowners to sign legally binding agreements that prevent them from certain behaviors, such as keeping farm animals as pets (horses and cows), running businesses out of their homes (think car repair), or parking their land yachts in their driveways. They do this because a. such behavior is thought to create an external benefit to others. b. such behavior raises the price for real estate...
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