Why might externity create a problem for market allocation

Reference no: EM13207089

1. It has been said that "Prices are like giant neon billboards that flash important information." Describe the types of information that market prices provide.

2. What is an "externality"? Why might it create a problem for market allocation? Why is it widely accepted that the government is responsible for dealing with externalities? Please give examples of externalities?

3. Suppose that an automobile race track is built several miles from a small town. After the construction is completed it is discovered that the heavy roar from the cars regularly disturbs the 2,500 local residents between the hours of 10:00 PM and 1:00 AM on summer nights. Each local resident places a value of $150 on having quiet evenings at home during the summer concert season. The amphitheater owners could install a retractable roof over the track that would eliminate the noise at a cost of $350,000. Local residents could install extra insulation in their homes to soundproof them at a cost of $125 per resident. Suppose that transaction costs are small and it is easy for the theater owner and the town residents to reach an agreement that makes them all better off. If the amphitheater must provide full monetary compensation for any noise damage imposed on the community, what will the outcome be? If the amphitheater is NOT required to pay any compensation for any noise damage done to the community, what will be the outcome? What will happen if the transactions costs of reaching an agreement are large?

Reference no: EM13207089

Questions Cloud

Contemporary artists or art forms : Do you believe we are currently living in a "period of great art"? Why or why not? Please share the names of the contemporary artists or art forms that inform your response.

Express the final area : Express the final area (A) of the carpet in square inches (after both trim jobs) as a polynomial function of x.

Write down the vector equation and cartesian equation : Write down the vector equation AND Cartesian equation of a plane P through the points V1, V2, and V3.

Compute the amount of heat necessary to raise : calculate the amount of heat necessary to raise the temperature of 53.4 grams of ice at -50.0 degrees celsius to water

Why might externity create a problem for market allocation : Suppose that an automobile race track is built several miles from a small town. After the construction is completed it is discovered that the heavy roar from the cars regularly disturbs the 2,500 local residents between the hours of 10:00 PM and 1..

Write a transition matrix t that describes this situation : If the rates of change remain constant from one year to the next, determine the steady state matrix and how long it will take for it to occur.

State the calorimeter was a perfect insulator : In this exercise it was also assumed that the calorimeter was a perfect insulator and that no heat was lost to the surroundings.

Was lucy a feminist or just an example of female stereotypes : Was Lucy a feminist or just an example of female stereotypes and include specific evidence and some counterarguments

Find the speed of each : John and Tony start from the same place at the same time and head for a town 10 miles away. John walks twice as fast as Tony and arrives 3 hours before Tony. Find the speed of each.

User Account

All Pages