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Draw a graph of the market for fire extinguishers

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Reference no: EM13151012

Consider the market for fire extinguishers.

a. Why might fire extinguishers exhibit positive externalities?

b. Draw a graph of the market for fire extinguishers, labeling the demand curve, the social-value curve, the supply curve, and the social-cost curve.

c. Indicate the market equilibrium level of output and the efficient level of output. Give an intuitive explanation for why these quantities differ.

d. Label the deadweight loss associated with the market equilibrium. What does this area represent?

e. If the external benefit is $10 per extinguisher, describe a government policy that would yield the efficient outcome.

Reference no: EM13151012

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