week6_recitation_problem

week6_recitation_problem - Econ 1101 Week 6 Recitation...

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1 Econ 1101 Week 6 Recitation Problem on Positive Externalities Before starting on this worksheet, please read Reading 6, ±International Application: Global Externalities and ±Cap and Trade.² This worksheet goes through a similar analysis. Instead of an analysis of a negative externality and taxes, this worksheet considers a positive externality and subsidies. Let³s just say that all the discussion in class about no externalities in Econland is all wrong. In fact, for every widget consumed in Econland, there is a positive external benefit valued at $4 per widget (a) What is a real-world example of a good that has positive external benefits? (b) Policymakers in Econland are considering offering a subsidy on widgets. You have been called in to calculate the effects of various choices. Please fill out the table below: S u b s i d y 0 (free market) 2 4 6 Q P S P D Consumer Surplus (CS) Producer Surplus (PS) Gov³t Surplus (GS) CS+PS+GS External Benefit Total Surplus including Externality (c) Total surplus is maximized at a subsidy of _____where total output is ____.
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This note was uploaded on 04/02/2011 for the course ECON 1101 taught by Professor Someguy during the Spring '07 term at Minnesota.

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week6_recitation_problem - Econ 1101 Week 6 Recitation...

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