09 Jul ECON 112 Determine positive or negative externality questions solution
Question Description
1) Indicate whether the following activities create a positive or negative externality: a. Late-night road construction begins on a new bridge. Consequently, traffic is rerouted past your house while the construction takes place. b. An excavating company pollutes a local stream with acid rock. c. A homeowner whose property backs up on a city park enjoys the sound of kids playing soccer. d. A student uses his cell phone during class. e. You and your friend volunteer to plant wild flowers along the local high way. 2) A city is considering expanding a frequently traveled road from two lanes to four lanes. This road passes through the center of the city. What negative externalities and positive externalities might the expansion create, on 2 d. a public swimming pool. e. a vaccination for the flu. f. streetlight. 4) A study finds that leaf blowers make too much noise, so the government impose a $10 tax on the manufacturers of leaf blowers to correct for the social cost of the noise pollution. The tax completely internalizes the externality. Before the corrective tax, Blown Away Manufacturing regularly sold blowers for $100. After the tax is in place, the consumer price for leaf blowers rises to $105. a. What is the private market price? b. Describe the impact of the tax on the number of leaf blowers sold c. What is the socially optimal price to the consumer? d. What net price is Blown Away receiving after it pays the tax? e. Using a supply and demand graph, demonstrate the impact of this tax in correcting for the externality. In your graph, indicate the private market equilibrium, the social optimum, as well as the deadweight loss associated with the externality. 5) Draw a graph to illustrate the market equilibrium and the social optimum in the case where there is a positive externality due to under-consumption. Indicate on your graph the deadweight loss due to under-consumption. 6) A pizza business has the cost structure described below. The firm’s fix costs are $25 per day. Calculate the firm’s average fixed costs, average variable costs, average total cost, and marginal cost. Output (pizzas per day) Total cost 0 $25 10 75 20 115 30 150 40 175 50 190 60 205 70 225 80 250 3 7) Question 2 (page 270) in the Study Problems at the end of Chapter 8 in the textbook. 8) Question 10 (page 272) in the Study Problems at the end of Chapter 8 in the textbook. 9) True or False? a. The AFC curve can never rise. b. Diminishing marginal product is a long-run constraint that prevents lower costs. c. The MC curve intersects the AVC and ATC curves at the minimum point along both curves. d. Accounting profit is smaller than economic profit. e. Total cost divided by output is equal to marginal cost.
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