Assignment 2

Assignment 2 - Emilie Gein Econ 1101 Assignment 2 All...

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Emilie Gein Econ 1101 Assignment 2 All graphs/drawings attached on last page. 1) Consumer Surplus is the difference between what consumers are required to pay and what consumers are willing to pay. Demand curve is what willing to pay. Market price is what required to pay. Area above market price but below demand curve left of quantity sold. Produce Surplus is the difference between what producers can receive and what producers are willing to receive. Market price is what will be able to sell their goods. Supply curve is what willing to receive. Area below market price but above supply curve left of quantity sold. 2) Pollution represents a negative externality. Pigouvian taxes correct for externalities. Imposing a tax decreases supply, so new supply = MSC. Equilibrium quantity = efficient level of output. Thus, internalizing the externality. Other methods include “command and control” where the government forbids anyone from producing more than limit decided, and “cap and trade” where the government sets limit on how much is tolerable, and issue permits which allow firms to trade these amongst each other. Those who need them will buy them, those who don’t will sell them, equilibrium price is set by this market. 3) A negative externality is the by-product in creating some other good that we
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This note was uploaded on 03/30/2008 for the course ECON 1101 taught by Professor Someguy during the Winter '07 term at Minnesota.

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Assignment 2 - Emilie Gein Econ 1101 Assignment 2 All...

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