Question

Question 12 (1 point) One study indicated that the biggest intervention people could make toward reducing their carbon footprints would be to eat less red meat (due to GHG emissions from raising animals such as cattle). Suppose the external cost of producing one pound of hamburger meat is equal to $1. Given the information in the diagram below, compute the reduction in total social benefit from reducing output of hamburger meat from the market equilibrium quantity to the socially-efficient quantity $per lb. MSC S-MPC 4.00- .50. D-MPB-MSB 50 100 lb. of hamburger meat Question 13 (1 point) One study indicated that the biggest intervention people could make toward reducing their carbon footprints would be to eat less red meat (due to GHG emissions from raising animals such as cattle). Suppose the external cost of producing one pound of hamburger meat is equal to $1. Given the information in the diagram below, compute the net gain to society if we reduced output of hamburger meat from the market equilibrium quantity to the socially efficient quantity. Or, equivalently, compute the net loss to society of overproduction in this market. answer $per lb. MSC S-MPC 4.00. 3.50 D-MPB-MSB 50 100 lb. of hamburger meat

Answer 1

(Question 12)

Market equilibrium is at intersection of D & MPC curves, with price $3.5 and quantity 100.

Efficient equilibrium is at intersection of D & MSC curves, with price $4 and quantity 50.

Change in social benefit = (1/2) x Change in price x Change in quantity = (1/2) x $(4 - 3.5) x (100 - 50) = (1/2) x $0.5 x 50

= $12.5

(Question 13)

Market equilibrium is at intersection of D & MPC curves, with price $3.5 and quantity 100.

Efficient equilibrium is at intersection of D & MSC curves, with price $4 and quantity 50.

Net loss to society = (1/2) x Unit externality cost x Change in quantity = (1/2) x $1 x (100 - 50) = (1/2) x $1 x 50

= $25