What is the deadweight loss resulting from this externality

Assignment Help Business Economics

Reference no: EM13851898

Suppose that demand for a product is given by Q=1000-P. Supply of the product is given by Q=2P. There is a positive consumption externality from this product, in the amount of $5 per unit.

a. Draw the market for this good, labeling the private marginal cost (PMC), social marginal cost (SMC), private marginal benefit (PMB) and social marginal benefit (SMB) curves. (If private and social marginal costs or benefits are equal, indicate this)

b. What quantity of the good is consumed under the private market equilibrium?

c. What is the socially optimal level of consumption of the good?

d. What is the deadweight loss resulting from this externality?

Reference no: EM13851898

Questions Cloud

What is the marginal rate of substitution : Mary consumes two goods, Diet Coke (X) and Cheeseburgers (Y). Mary’s Utility function is represented by U(X,Y) = 3XY2 . Her marginal utility function for X is MUx = 3Y2 . Her marginal utility function for MUy = 6XY.Write an expression for Mary’s budg..

Determine the set of all restaurants : You and your friend are trying to decide where to have dinner. Restaurant #1 has an average price of $20 per person and is 5 miles away. Restaurant #2 has an average price of $30 but is only 1 mile away. Determine the set of all restaurants which wou..

What the optimal way to bracket stocks into portfolio : Suppose you have 5 stocks. In the past week they have changed in the following way: +5,1,+2,3,2. For each of the value functions from the previous problem, determine what the optimal way to bracket stocks into a portfolio to maximize the value.

Value functions is loss averse : Determine if each of the following value functions is loss averse. (a) v(x) = 0.25x for x > 0 and v(x) = 0.5 for x ≤ 0 (b) v(x) = √x for x > 0 and v(x) = 0.5x for x ≤ 0 (c) v(x) = ex for x > 0 and v(x) = −√−x for x ≤ 0 (d) v(x) = √x for x > 0 and..

What is the deadweight loss resulting from this externality : Suppose that demand for a product is given by Q=1000-P. Supply of the product is given by Q=2P. There is a positive consumption externality from this product, in the amount of $5 per unit. What quantity of the good is consumed under the private marke..

Utility function-how much of each good will he demand : Edmund has the utility function U(x, y) = 2xy + 1. The prices of x and y are both $1 and Edmund has an income of $20. How much of each good will he demand? A tax is placed on x so that it now costs Edmund $2 while his income and the price of y stay t..

Utility function-demand for both goods double : Max has the utility function U(x, y) = x(y + 1). The price of x is $2 and the price of y is $1. Max’s Income is $11. How much x does Max demand? How much y? If his income doubles and prices stay unchanged, will Max’s demand for both goods double?

Marginal product of capital is decreasing : What does it mean that marginal product of capital is decreasing? Show the marginal products are diminishing in the cobb-douglas case. Determination of steady state capital per worker consider the steady state capital per worker k*, how is k* affecte..

Growth without diminishing productivity of capital : Growth without diminishing productivity of capital suppose that the production function is Y=AK. What is the condition for the growth rate of capital per worker, ?what does the s*(y/k) curve look like? Discuss how your results relate to diminishing p..

User Account

All Pages