Project #4546 - Economics - Externalities

Externalities Homework

                        Explain in your own words what is meant by external costs and external benefits. Why may market outcomes be less than ideal when externalities are present?

 

                        Using a supply and demand diagram, demonstrate how a negative externality leads to market inefficiency. How might the government help to eliminate this inefficiency?

 

                        Using a supply and demand diagram, demonstrate how a positive externality leads to market inefficiency. How might the government help to eliminate this inefficiency?

                        There are two ways to protect your car from theft. The Club makes it difficult for a car thief to take your car. Lojack makes it easier for the police to catch the car thief who has stolen it. Which of these types of protection conveys a negative externality on other car owners? Which conveys a positive externality? Do you think there are any policy implications of your analysis?

                        Consider the market for fire extinguishers.

a.      Why might fire extinguishers exhibit positive externalities?

b.      Draw a graph of the market for fire extinguishers, labeling the demand curve, the social-value curve, the supply curve, and the social-cost curve.

c.       Indicate the market equilibrium level of output and the efficient level of output. Give an intuitive explanation for why these quantities differ.

d.      If the external benefit is $10 per extinguisher, describe a government policy that would yield the efficient outcome.

                        Greater consumption of alcohol leads to more motor vehicle accidents and, thus, imposes costs on people who do not drink and drive.

a.      Illustrate the market for alcohol, labeling the demand curve, the social-value curve, the supply curve, the social-cost curve, the market equilibrium level of output, and the efficient level of output.

b.      On your graph, shade the area corresponding to the deadweight loss of the market equilibrium. (Hint: The deadweight loss occurs because some units of alcohol are consumed for which the social cost exceeds the social value.) Explain.

 

 

THIS WILL GET PUT THROUGH A PLAGERISM TEST

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Due By (Pacific Time) 04/21/2013 03:00 pm
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