ch10-review-2005

ch10-review-2005 - In your graph, clearly indicate the...

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Review Questions for Chapter 10 - Externalities Spring 2005 1. In a properly labeled graph, show how the existence of a negative externality leads competitive markets to produce more than the efficient quantity. In your graph, clearly indicate the marginal private costs (MPC), marginal private benefit (MPB), and the marginal social costs (MSC). Show an area of deadweight loss associated with the market equilibrium. What is the Pigovian solution? 2. In a properly labeled graph, show how the existence of a positive externality leads competitive markets to produce less than the efficient quantity.
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Unformatted text preview: In your graph, clearly indicate the marginal private costs (MPC), marginal private benefit (MPB), and the marginal social benefit (MSB). Show an area of deadweight loss associated with the market equilibrium. What is the Pigovian solution? 3. What are the solutions available to the government to deal with an externality? Discuss their merits and shortcomings. 4. Coase offers a different approach to dealing with an externality. Give Coase Theorem. Give an example of how it could be applied. 5. Show how tradable permits can lead to the same level of abatement at a lower total cost....
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