Reference no: EM131004821
Externalities - Definition and examples
An externality arises when a firm or person engages in an activity that affects the well-being of a third party, yet neither pays nor receives any compensation for that effect. If the impact on the third party is adverse, it is called a negative externality.
The following graph shows the demand and supply curves for a good with this type of externality. The dashed drop lines on the graph reflect the market equilibrium price and quantity for this good.
Shift one or both of the curves to reflect the presence of the externality. If the social cost of producing the good is not equal to the private cost, then you should shift the supply curve to reflect the social costs of producing the good; similarly, if the social value of producing the good is not equal to the private value, then you should shift the demand curve to reflect the social value of consuming the good.
Demand Supply PRICE (Dollars per unit) QUANTITY (Units) Demand Supply
With this type of externality, in the absence of government intervention, the market equilibrium quantity produced will be than the socially optimal quantity.
Which of the following generate the type of externality previously described? Check all that apply.
Your roommate, Simone, has bought a cat to which you are allergic.
Edison has planted several trees in his backyard that increase the beauty of the neighborhood, especially during the fall foliage season.
The city where you live has turned the publicly owned land next to your house into a park, causing trash dropped by park visitors to pile up in your backyard.
A leading electronics manufacturer has discovered a new technology that dramatically improves the picture quality of plasma televisions. Firms of all brands have free access to this technology.
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A firm production function
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Determine the primary function of government
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Calculate the income elasticity of demand
: Suppose that market demand for answering machines is given by the expression QD = 1,000 – 150P+ 25I. Assume that per capita disposable income I = $200 and the price of answering machines is P = $10. Calculate the price elasticity of demand for answer..
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Externalities-definition and examples
: An externality arises when a firm or person engages in an activity that affects the well-being of a third party, yet neither pays nor receives any compensation for that effect. If the impact on the third party is adverse, it is called a negative ex..
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What is the arc income elasticity of demand for visits
: Per capita income in County A is $45,000. Per capita income in County B $38,000. Physician visits average 3.4 per year in County A and 3.2 per year in County B. What is the arc income elasticity of demand for visits?
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Consumers utility-maximizing bundle of goods
: A consumer's utility is given by U(X,Y)=X^0.25*Y^0.75. (To be clear, ^ denotes exponentiation, so the utility function is X to the 0.25 power multiplied by Y to the 0.75 power.) What is the number of units of good X in the consumer's utility-maximizi..
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Jobs with the cost and flows
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If an input constitutes a large fraction of total costs
: If firms can easily substitute another input for the one that has increased in price, there may be little increase in costs. If an input constitutes a large fraction of total costs, an increase in its price will raise costs significantly.
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