Reference no: EM13376058

Consider a landscaping service market. Here, landscaping means mowing, weeding, and trimming, etc, i.e. a regular maintenance job, rather than a big scale construction or cleaning. In a hypothetical town of fifty thousands homes, the average price of monthly landscaping service is $100, and about thirty thousands homes use landscaping services. That is, only 60% of homes are paying $100 for the services, the rest 40% are doing the yard work themselves, some of whom fall behind with keeping up their yards.

(1) What kind of externality is associated with the landscaping services? You need to provide a clear justification for your answer.

(2) In a graph, draw supply and demand curves for landscaping services, and show the price and quantity at a private equilibrium, based on the description in the text of the question given above.

(3) Based on your answer for (1), would a socially desirable quantity of service provided be greater or less than the quantity at a private equilibrium? Explain.

(3) In order to bring about a socially desirable quantity of landscaping service, what should the government do? Explain in words and show the effect of the government action in a graph.