Question

Light​ Bulbs: Shining a Light on Bulb Recycling

​We've received several questions about recycling light​ bulbs, ranging from regular incandescents to compact fluorescents​ (CFLs). Home Depot Canada is aiming to recycle 1.5 million bulbs by 2011. Lasting six to 10 times longer than the average incandescent bulb and using up to 75 per cent less​ electricity, CFLs save on power consumption and cut your electricity bill.

Calgary Herald​, March​ 27, 2008

The graph shows the market for CFLs.

Suppose the government
Price and cost (dollars per bulb) 5.00 SE MC 4.00- 3.00- 2.004 1.00- MSB 0.0047 ses to Quantity (millions of bulbs per year) >>> Draw only the objects specified in the question.
dize CFLs.

  Draw the S​ = MSC​ - subsidy curve that results in the efficient quantity of lightbulbs. Label it.

Draw a point to show the efficient quantity and the marginal private benefit at this quantity.

  

Answer 1

This is the case of positive externality. The government will provide subsidy to consumers and this will shift the marginal cost curve downwards as depicted below:

Price and cost (dollars per bulb) 5.00 SE MC 4.00- 3.00- 2.004 1.00- MSB 0.001 a s Quantity (millions of bulbs per year) ó To >>> Draw only the objects specified in the question.

Given the curves above, the socially efficient equilibrium occurs at point E where equilibrium quantity is equal to 6 million bulbs and private equilibrium occurs at point P where 4 million bulbs are consumed.