ch11b - Chapter 11: Externalities and Property Rights, part...

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Chapter 11: Externalities and Property Rights, part 2 Tuesday, July 20
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NEGATIVE EXTERNALITY: OVERVIEW MB = 200 2Q MC = 80 + Q MEC = 30 MSC = 110 + Q Competitive equilibrium MB = MC 200 2Q = 80 + Q Q * = 40, P * = 120 Social optimum MB = MSC 200 2Q = 110 + Q Q o = 30, P o = 140 DWL = .5(30)(10) = 150
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QUESTION 1 (negative externality: market equilibrium) marginal private benefit function: MB = 210 3Q marginal private cost function: MC = 50 + Q marginal external cost: MEC = 80 If the marginal benefit function, marginal private cost function, and marginal external cost of secret green ooze are as given above, what is the market equilibrium quantity, if neither producers nor consumers are required to pay the external cost? A) 60 B) 50 C) 40 D) 30 E) 20
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answer to question 1 marginal private benefit function: MB = 210 3Q marginal private cost function: MC = 50 + Q marginal external cost: MEC = 80 MB = MC 210 3Q = 50 + Q 4Q = 160 Q * = 40 A) 60 B) 50 C) 40 D) 30 E) 20
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QUESTION 2 (negative externality: market equilibrium) marginal private benefit function: MB = 210 3Q marginal private cost function: MC = 50 + Q marginal external cost: MEC = 80 When the market equilibrium quantity of 40 is chosen, what is the sum of producer and consumer surplus, minus the total external cost? That is, at Q * = 40, find CS + PS EC A) 2400 B) 800 C) 200 D) 0 E) -3200
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answer to question 2 marginal private benefit function: MB = 210 3Q marginal private cost function: MC = 50 + Q marginal external cost: MEC = 80 That is, at Q * = 40, find CS + PS EC CS = 2400 , PS = 800 , EC = 80 × 40 = 3200 A) 2400 B) 800 C) 200 D) 0 E) -3200
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QUESTION 3 (negative externality: social optimum) marginal private benefit function: MB = 210 3Q marginal private cost function: MC = 50 + Q marginal external cost: MEC = 80 What is the socially optimal quantity of secret green ooze? A) 20 B) 10 C) 5 D) 90 E) 30
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answer to question 3 marginal private benefit function: MB = 210 3Q marginal private cost function: MC = 50 + Q marginal external cost: MEC = 80 MSB = MSC 210 3Q = (50 + Q) + 80 4Q = 80 Q o = 20 A) 20 B) 10 C) 5 D) 90 E) 30
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QUESTION 4 (negative externality: market equilibrium) marginal private benefit function: MB = 210 3Q marginal private cost function: MC = 50 + Q marginal external cost: MEC = 80 When the socially optimal quantity of 20 is chosen, what is the sum of producer and consumer surplus, minus the total external cost? That is, at Q o = 20, find CS + PS EC A) 2400 B) 800 C) 200 D) 0 E) -3200
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answer to question 4 marginal private benefit function: MB = 210 3Q marginal private cost function: MC = 50 + Q marginal external cost: MEC = 80 That is, at Q o = 20, find CS + PS EC CS + PS = 2400 , EC = 80 × 20 = 1600 A) 2400 B) 800 C) 200 D) 0 E) -3200
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QUESTION 5 (negative externality: deadweight loss) marginal private benefit function: MB = 210 3Q marginal private cost function: MC = 50 + Q marginal external cost: MEC = 80
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ch11b - Chapter 11: Externalities and Property Rights, part...

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