ECON 160 Lecture Notes - Lecture 18: Economic Equilibrium, Demand Curve, Externality

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indigoraven449

17 Nov 2016

School

Binghamton University

Department

Economics

Course

ECON 160

Professor

Susan W.Hanes

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Document Summary

If externality in market, with perfect government policy, the equilibrium will be a. qm b. qeff c. Market equilibrium = is efficient in that the economy produces up until the point where the volume of consumption is exactly offset by the cost of production. Externality fails when supply curve doesn"t indicate cost and demand curve doesn"t indicate cost of consumption. Externality occurs when individuals who are not directly involved in a transaction are affected by the transaction. Because society displeasure does not affect the clubs profit. Bars would get more space, or they could raise the price. One way of government to determine what is efficient and move us to the point is by commanding reduction of supply. Supply curve shift left if the club invests in sound proof walls. Social planner takes into account preferences of all members of society (external cost) Role of social planner usually taken by government.

Related Questions

You have been hired by the town of Bedford, Ohio, to conduct an analysis of ongoing operations by a local Coca Cola bottler. A study by the Ohio Environmental Protection Agency found that this firms water pollution is negatively affecting the environment. The study has been read by several politicians and they have requested the state government to impose a tax. Politicians expect to observe a decrease in environmental damage (specifically, eliminate the deadweight loss).

Your task is to find the optimal tax that the government should impose to this Coca Cola bottler. To help you in your task, you are given the following information:

Inverse Demand: P=10- Q

Inverse Supply (Marginal Private Cost): MCp = 5+Q

Externality Cost (Marginal Cost of Externality): MCE = 0.5Q

a. Find the equilibrium market price and quantity (P_m, Q_m)

b. Find the socially optimal equilibrium price and quantity ( P*, Q *)

c. Determine the optimal tax (the Green Tax) the state government should charge the local Coca Cola bottler to deal with the negative externality. Hint: To find this, measure the difference between the socially optimal equilibrium price (P*) and the price the firm receives at the socially optimal equilibrium quantity (Q*), that is, MCp (Q=Q*)

viridiancod415

10. If a good has an external benefit(positive externality associated with the production of the good), a market left unregulated will produce

a. less than the efficient amount.

b. the efficient amount.

c. more than the efficient amount.

d. an amount that may be more than, less than, or equal to the efficient amount depending on how large the external benefit is relative to the private benefit.

Question 1

An externality

		enhances market efficiency.
		is a private cost or benefit that results from the production or consumption of a good or service that is external to a market.
		is a benefit or cost that affects someone who is not directly involved in the production or consumption of a good or service.
		refers to production or consumption that occurs outdoors.

5 points

Question 2

Externalities can be produced by:

		the high price of goods and services
		individuals; firms
		market prices; market incomes
		oceans; streams

5 points

Question 3

When an external cost exists that is NOT taken into account in the production of a product,

		the level of output is too high, and the supply curve should shift to the left to account for the externality.
		the price of the product is too high, and production should be expanded to lower the price.
		the level of output is optimal, and there should be no change in the supply curve.
		the level of output is too low, and the supply curve should shift to the right to account for the externality.

5 points

Question 4

Which of the following is correct?

		MSC = MPC - MD
		MPC = MSC + MD
		MSC = MPC + MD
		MD = MSC + MPC

5 points

Question 5

If external costs (costs of cleaning up) are included and added to a firm's private costs, then

		the demand curve will shift to the left.
		the supply curve will shift to the right.
		the demand curve will shift to the right
		the supply curve will shift to the left.

5 points

Question 6

The Coase Theorem states that

		government intervention is always needed if externalities are present.
		assigning property rights is the only thing the government should do in a market economy.
		if transaction costs are low, private bargaining will result in an efficient solution to the problem of externalities.
		a free-market equilibrium is the best solution to address externalities.

5 points

Question 7

Buffalo in the United States almost became extinct while cattle, an animal that provides similar products, never have been close to extinction. The difference is due to

		the use of private property rights on cattle and common property rights on buffalo.
		the greater marginal value of a head of cattle relative to buffalo, leading to over-hunting of buffalo.
		cattle existing in Europe also while buffalo were specific to North America.
		the greater marginal value of a buffalo relative to a steer, leading to the overharvesting of buffalo.

5 points

Question 8

In theory, the Emissions Fee would

		cause firms to generate less pollution than their allowed limits.
		raise the production costs of all firms.
		cause firms to generate more pollution than their allowed limits.
		lower the production costs of all firms.

5 points

Question 9

A cap-and-trade policy

		has a set number of permits.
		allows polluters to trade permits.
		caps the total level of pollution allowed.
		all of the above.

Question 10

A Pigouvian tax corrects for

		market congestion.
		market losses.
		inefficient sales.
		low market prices.

harlequingoldfish8

ECON 160 Lecture Notes - Lecture 18: Economic Equilibrium, Demand Curve, Externality

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