Question

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: a. Positive externality b. Negative externality c. Private cost d. Private benefit Consider the market for coffee in the graph to the right. 1. Left unregulated, what is the equilibrium price and quantity? What is the efficient quantity? 2. is the efficient price higher or lower than the equilibrium price? The quantity? In your groups discuss why. 3. Suppose that the government imposed a $2 tax on the producers of coffee pods. Show the impact of the tax on the diagram. 4. Explain why tax makes the market MORE efficient? 5. Explain how the above analysis would differ if the market had a positive externality, and how the efficiency of such a market could be improved.

Answer 1

Page no. and Page no. 1 Q*) efficient than Shant 0 Quantity Equilibrium = 4 is Quantity less (5) Reason: This is because the social margint Cort (ie. Marginal cost After accounting for the externality is higher than the Private marginal cost and this price needs to higher and quanlity needs to be lower of we take w extemality into account a SME MSc MPC p*>p and a 29 3) Tnx = $2.on produces Hence, the supply Curve shifts vertically from MPC to Msc as the differemu b/w both is exactly Impact & MPC SNP P Equilibrium from MSC 100 Q Q* point p to a Wl Tax has made the market more efficient since it now internalizes the negativo externality and removes the Deadweight loss Cine area of A PQR). The price land quantity has also slifted towards their efficiency level. · DELTA My NoteBook