quanda10 - Chapter 10 1 The information below provides the...

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Practice Questions to accompany Mankiw & Taylor: Economics 1 Chapter 10 1. The information below provides the prices and quantities in a hypothetical market for automobile antifreeze. a. Plot the supply and demand curves for antifreeze in Exhibit 1. Exhibit 1 Answer: See Exhibit 3. Exhibit 3
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Practice Questions to accompany Mankiw & Taylor: Economics 2 b. What is the equilibrium price and quantity generated by buyers and sellers in the market? Answer: Price = €3, quantity = 500 units. c. Suppose that the production of antifreeze generates pollution in the form of chemical runoff and that the pollution imposes a €2 cost on society for each gallon of antifreeze produced. Plot the social cost curve in Exhibit 1. Answer: See Exhibit 4. Exhibit 4 d. What is the optimal quantity of antifreeze production? Does the market overproduce or under produce antifreeze? Answer: 400 units. The market overproduces because the market quantity is 500 while the optimal quantity is 400 units. e. If the government were to intervene to make this market efficient, should it impose a Pigovian tax or a subsidy? What is the value of the appropriate tax or subsidy? Answer: The government should impose a Pigovian tax of €2 per unit. 2. Suppose citizens living around Metropolitan Airport value peace and quiet at a value of €3 billion. a.
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This note was uploaded on 07/06/2009 for the course BUS BAM303 taught by Professor Na during the Spring '09 term at 東京大学.

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quanda10 - Chapter 10 1 The information below provides the...

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