Question

No Spacing Title 7. The following graph represents a market with an externality Assume there is no government Intervention. (6 pts.) Price $450 $350 $300 a. Is this an example of a negative or positive externality? What quantity will be produced in the market? What price will the market sell each unt? d. Calculate the extem benefit per unit at the quantity that that is being produced in the market .. What is the officent quantity to produce # Using the graph above, identify the area that represents the efficiency in the market Focus

Answer 1

a)

This wrong statement.

This is an example of positive externality. Here benefits of externalities are not considered in private demand curve.

b)

equilibrium : S = MPB

Qunatity = 300

c)

Price = $ 300

Where, demand and supply are equal excluding the marginal external benefits.

d)

External benefits = 450 -300

= $ 150

e) Efficient output = 375 where we consider marginal external benefit as well.

condition: MSB = MSC

f)

Following is an inefficient area:

No Spacing Title 7. The following graph represents a market with an externality Assume there is no government Intervention. (6 pts.) Price $450 $350 $300 a. Is this an example of a negative or positive externality? What quantity will be produced in the market? What price will the market sell each unt? d. Calculate the extem benefit per unit at the quantity that that is being produced in the market .. What is the officent quantity to produce Uning the graph above, identify the area that represents the inefficiency in the market Focus