hw3 chp 5 - increase demand by providing things like food...

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Kemile Jones HW 3 -chapter 5 7. When negative externalities are present the equilibrium output will be greater than the efficient output because the producer will be able to produce more at a lower price than the efficient level. When positive externalities are present, the equilibrium output will be smaller than the efficient output. Under production and under allocation result when positive externalities are present. Government may correct these divergences by using direct controls and taxes for negative externalities and it must supply public good to deal with positive externalities. Government can
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Unformatted text preview: increase demand by providing things like food stamps and education grants to subsidize consumers. External costs are things like pollution. Benefits are things like health vaccines. 9. Using the Coase theorem, it will be to the advantage of individual apple growers and beekeepers to negotiate so that beekeepers locate their production in or near orchards. This negotiation will work long as property ownership is well defined and bargaining costs are low. The government is not needed for this....
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