How the free market fails at allocating efficient quantity

Assignment Help Business Economics

Reference no: EM131091303

A coal fire plant that produces electricity emits sulfer dioxide, which causes Acid Rain, into the atmosphere. The market equilibrium price of electricity is $6 per kilowatt hour (kWh) and the market equilibrium quantity is 10 kWh. The external cost generated by the Acid Rain is $1/kWh of energy produced. a. What type of externality is occurring here? Using a graph, show how the free market fails at allocating the efficient quantity of kWh. Label the appropriate areas that show the efficiency/inefficiency of the market. Is the market over or under producing in this situation? Explain. (Estimate a new price and quantity)

Reference no: EM131091303

Questions Cloud

Determine the rate of return on this investment : A small start-up company invested in a new plant with an initial cost of $10 million. Operating costs for the plant were $3 million per year for 7 years. There was a special one-time charge of $1 million in year 2 to correct unexpected equipment prob..

Discuss stress and how it varies across cultures : Discuss stress and how it varies across cultures. How do legal, cultural, and economic factors influence product policy? Why are brand names an important marketing tool for international business?

New entrant comes late to the bidding process : Suppose that a new entrant comes late to the bidding process, and plans a super competitive bid of $13,900 per case. This is a new orthopedic institute that is made up of several orthopedic surgical groups. They have their own diagnostic facilities a..

What are some of the monetary policies : What are some of the monetary policies put in place during the decade of the 1980s? Consider the discount rate set by the Fed, the rates on reserves, and open market operations. What were the actions and impacts of these policies on businesses and in..

How the free market fails at allocating efficient quantity : A coal fire plant that produces electricity emits sulfer dioxide, which causes Acid Rain, into the atmosphere. The market equilibrium price of electricity is $6 per kilowatt hour (kWh) and the market equilibrium quantity is 10 kWh. What type of exter..

What is the efficient solution for society : Suppose a manufacturing firm dumps its waste into the river, causing pollution downstream where residents like to water ski and fish. The marginal external cost to the residents is $800 for their diminished recreational enjoyment. What is the efficie..

Demand and supply functions of good are specified : Suppose the demand and supply functions of a good are specified as follows: QD= 600-2p and QS= -200 + 3P. Equilibrium price and quantity must be:

The social security statement : Charles Smith is a senior production engineer who has worked for 18 years since he graduated from college. Yesterday in the mail, he received a report from the U.S. Social Security Administration. Charles never thought much about social security; he ..

Explain how changes in price result in upward sloping supply : Explain how changes in prices result in a downwards sloping demand. Explain how changes in prices result in an upward sloping supply. What will happen when consumer demand equals producer supply?

User Account

All Pages