Homework #3 E201 Page 1 of 1 Due: 10:00a.m. Wednesday, April 03, 2008 Location: Wylie Hall 115 or Wylie Hall 123 Instruction: 1) Type or print legibly your name on the front page. 2) Type or print on one side of the paper only. 3) Answer must be in the same order as the questions. 4) STAPLE all pages together. 1. “The optimal level of pollution is zero.” True/false/explain. Use a graph to support your answer. 2. Use a supply-and-demand diagram to explain the effect of a negative externality in production on the market price and quantity. 3. Alcohol consumption is directly related to motor vehicle accidents; thus, greater consumption of alcohol imposes costs on people who do not drink and drive. a. Illustrate the market for alcohol, labeling the demand curve, the social-value curve (marginal social benefit curve), the supply curve, the social-cost curve, the market equilibrium level of output, and the efficient level of output. b.
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