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suppose that electricity producers create a negative externality equal to \$5 per unit. further suppose that the government imposes a \$5 per-unit tax on the producers. what is the relationship between the after-tax equilibrium quantity and the socially optimal quantity of electricity to be produced?

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get suppose that electricity producers create a negative externality equal to \$5 per unit. further suppose that the government imposes a \$5 per-unit tax on the producers. what is the relationship between the after-tax equilibrium quantity and the socially optimal quantity of electricity to be produced? from EN Bilgi.

Suppose that electricity producers create a negative externality equal to \$5 per unit. Further, suppose that the government gives a \$5 per

Answer to: Suppose that electricity producers create a negative externality equal to \$5 per unit. Further, suppose that the government gives a \$5...

Externality

Suppose that electricity producers create a negative externality equal to \$5 per unit. Further,...

Suppose that electricity producers create a negative externality equal to \$5 per unit. Further,... Question:

Suppose that electricity producers create a negative externality equal to \$5 per unit. Further, suppose that the government gives a \$5 per-unit subsidy to producers. What is the relationship between the equilibrium quantity and the socially optimal quantity of electricity to be produced?

(a). They are equal.

(b) The equilibrium quantity is greater than the socially optimal quantity.

(C). The equilibrium quantity is less than the socially optimal quantity.

(d). There is no enough information to answer the question.

Externality:

An externality is an effect imposed on a third party by private actions. For example, playing your music so loud that your neighbors can hear is an externality. It might be positive or negative depending on if the neighbors enjoy the music.

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Negative Externality: Definition & Example

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Chapter 1 / Lesson 11

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In this lesson we will learn about negative externality. We will look at examples and discover who a negative externality affects. The lesson will conclude with a summary and a quiz.

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micro exam answers Flashcards

Start studying micro exam answers. Learn vocabulary, terms, and more with flashcards, games, and other study tools.

Refer to Figure 9-6. The size of the tariff on carnations is (look at graph 9-6)

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\$2 per dozen.

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Refer to Figure 9-3. The increase in total surplus in China when trade is allowed is

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\$500

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1/106 Created by overman9664

Terms in this set (106)

Refer to Figure 9-6. The size of the tariff on carnations is (look at graph 9-6)

\$2 per dozen.

Refer to Figure 9-3. The increase in total surplus in China when trade is allowed is

\$500

When a nation first begins to trade with other countries and the nation becomes an exporter of soybeans,

all of the above

refer to figure 9-17 the amount of revenue collected by the gov from the tarrif is

288

Private markets fail to reach a socially optimal equilibrium when positive externalities are present because the

social value exceeds the private value at the private market solution.

Suppose that electricity producers create a negative externality equal to \$5 per unit. Further suppose that the government gives a \$5 per-unit subsidy to producers. What is the relationship between the equilibrium quantity and the socially optimal quantity of electricity to be produced?

The equilibrium quantity is greater than the socially optimal quantity

Suppose that an MBA degree creates no externality because the benefits of an MBA are internalized by the student in the form of higher wages. If there are no government subsidies for MBAs, then which of the following statements is correct?

The equilibrium quantity of MBAs will equal the socially optimal quantity of MBAs.

Two firms, A and B, each currently dump 20 tons of chemicals into the local river. The government has decided to reduce the pollution and from now on will require a pollution permit for each ton of pollution dumped into the river. The government gives each firm 10 pollution permits, which it can either use or sell to the other firm. It costs Firm A \$100 for each ton of pollution that it eliminates before it reaches the river, and it costs Firm B \$50 for each ton of pollution that it eliminates before it reaches the river. After the two firms buy or sell pollution permits from each other, we would expect that

Firm B will no longer pollute, and Firm A will not reduce its pollution at all.

difference between corrective tax and tradable pollution permit?

tax sets the price of pollution and permit sets the quantity

Two firms, A and B, each currently dump 50 tons of chemicals into the local river. The government has decided to reduce the pollution and from now on will require a pollution permit for each ton of pollution dumped into the river. It costs Firm A \$100 for each ton of pollution that it eliminates before it reaches the river, and it costs Firm B \$50 for each ton of pollution that it eliminates before it reaches the river. The government gives each firm 20 pollution permits. Government officials are not sure whether to allow the firms to buy or sell the pollution permits to each other. What is the total cost of reducing pollution if firms are not allowed to buy and sell pollution permits from each other? What is the total cost of reducing pollution if the firms are allowed to buy and sell permits from each other?

\$4,500; \$3,500

Assume, for Taiwan, that the domestic price of soybeans without international trade is lower than the world price of soybeans. This suggests that, in the production of soybeans?

Taiwan has a comparative advantage over other

Taiwan has a comparative advantage over other countries and Taiwan will export soybeans

Assume, for Canada, that the domestic price of tomatoes without international trade is higher than the world price of tomatoes. This suggests that, in the production of tomatoes,

other countries have a comparative advantage over Canada and Canada will import tomatoes.

Suppose a tax of \$0.10 per unit on a good creates a deadweight loss of \$100. If the tax is increased to \$0.25 per unit, the deadweight loss from the new tax would be

625

Refer to Figure 8-12. Which of the following combinations will minimize the deadweight loss from a tax?

supply 1 and demand 1

Why do Taxes Cause Dead-weight Loss?

taxes cause deadweight losses because they prevent buyers and sellers from realizing some of the gains from trade

Taxes cause deadweight losses because they

prevent buyers and sellers from realizing some of the gains from trade

refer to figure 8-12 which of the following combinations will minimize the deadweight loss from a tax

supply 1 and demand 1

suppose a tax of \$3 per unit is imposed on a good. The supply curve is a typical downward-sloping straight line. The tax decreases consumer surplus by \$3900 and decrease producer surplus by \$3000. The tax revenue of \$6,000. The tax decreased the equilibrium quantity of the good form.

2600 to 2000

refer to figure 8-17 if the government changed the per-tax unit from \$5.00 to \$7.50, then the price paid by buyers would be \$10.50. the price received by the sellers would be \$3, and the quantity sold in the market would be 0.5 units. Compared to the original tax rate.

decrease government revenue and increase the deadweight loss from the tax

Source : quizlet.com

ECON 150: Microeconomics

Section 01: Externalities

Adam Smith taught each individual, seeking only his own gain, "is led by an invisible hand to promote an end which was no part of his intention," that end being the public interest. However, there are times when the market outcome differs from the outcome that society considers optimal.  This market failure may occur when there is an externality, an external benefit or cost that is enjoyed or imposed on a third party other than the buyer or seller of the good. For example, consider your answer to the following question:

What is the optimal level of pollution?

Most people would automatically give the answer that zero pollution would be optimal. However, the optimal level of pollution is not zero; instead, the optimal level is obtained by following our economic decision rule of equating the marginal benefit to the marginal cost.

When a negative externality  is present, there is a cost imposed on a third party not involved in the production or consumption of the good. Examples of negative externalities include various forms of pollution, such as air pollution from factories or power plants, water pollution; noise pollution such as airports or even roommates; and drivers who are impeded by drugs, alcohol, or texting. Use the link below to view an ABC News 20/20 video clip on noise pollution.

Click here to watch the ABC News 20/20 video clip on "Too Much Noise."

If a factory is able to pollute without paying for the damages caused by the pollution, it will produce more than the socially optimal level of output. Since the firm only pays for the marginal private cost of producing the good or service, it will produce where the marginal private cost is equal to the marginal private benefit. But when there are externalities, the marginal private cost is not the same as the marginal social cost. The marginal social cost adds to the marginal private cost the cost of the externality, which graphically is the vertical distance between the marginal private cost and marginal social cost. If we were to account for the negative externality, the optimal level of production would be lower than the market quantity. As is, the excessive quantity of output creates a deadweight loss to society since the marginal social cost exceeds the marginal social benefit.

Externalities may exist in either the production or consumption of the good or service.  Negative production externalities are generated when the good or service is produced such as factories polluting the air, water or land as they produce the good or service. Negative consumption externalities occur when the consumption of the good or service creates the externality, for example an individual that consumes alcohol at the bar then, when driving home, kills pedestrians due to his impairment.

Property that is held in common, such as air, water, and public lands, belongs to everyone as a whole. Consequently no one individual has an incentive to care for it, since it doesn’t belong to just her. In some college apartments, dishes pile up in the sink or the garbage doesn’t get taken out, because it belongs to everyone collectively and no one individually. When a resource belongs to everyone, individuals account only for the private marginal benefits and costs and fail to account for the impact of their actions on others, hence the tragedy of the commons.

For example, if the ocean is common property there is a tendency to overfish because fishermen only consider their private costs and do not account for how their larger catch makes it more costly for other fisherman to catch the fewer remaining fish.  Similarly during the 19th century, American bison that once roamed much of North American were killed by the millions since they were a common resource. Because individuals actions fail to account for the impact on others, a negative externality exists.

Reference:

http://www.economicexpert.com/a/Tragedy:of:the:commons.htm

http://animals.nationalgeographic.com/animals/mammals/american-bison/

Positive Externalities

When a positive externality is present, the market produces less than the socially optimal quantity of the good or service, since there is a benefit to society that is not captured by the individual.  Education, for example, not only benefits the individual but also society as a whole since individuals often are creating new products and services and are less likely to be involved in violent crimes or on the welfare rolls of society. However, a student will only consider the marginal private benefit and the marginal private cost when determining the quantity of education that he or she should obtain.

Other examples of positive externalities include immunizations or a neighbor who fixes up his house which in turn increases the property value of other homes on the street.  A deadweight loss also exists when there is a positive externality because at the market quantity, the marginal social benefit is greater than the marginal social cost.

When an externality exists, the socially optimal output is not achieved. A variety of different policies exist to correct these ranging from “command-and-control” to market-based policies.

Source : courses.byui.edu

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James 11 month ago

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