ECO 201 Lecture Notes - Lecture 13: Tax Incidence, Externality, Gout

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orchidpig108

23 Jul 2018

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At equilibrium, p* = q*(supply) and p* = 10 q*(demand) (cid:1006)q* = (cid:1005)(cid:1004) q* = (cid:1009) Shift the suppl(cid:455) (cid:272)urve up (cid:271)(cid:455) the a(cid:373)ou(cid:374)t of ta(cid:454) Add the a(cid:373)ou(cid:374)t of the ta(cid:454) to the verti(cid:272)al i(cid:374)ter(cid:272)ept of the inverse supply equation: solve for the after task equilibrium by setting the new supply equation = original equation s + q* = 10 q* Get p* by plugging q* to either the new s into either the new s or the original demand. Situations in which the cost or benefit of a transaction spill over (affect) onto people who are not directly involved in the transaction. In which the firm only considers its marginal private cost (mpc) when producing and ignores external costs that affect others. Marginal social cost (msc) = mpc + external cost. If ec = 0, then msc = mpc. If ec = 0, then msc > mpc (negative externality)

Related Questions

The market demand for gadgets is given byQD=100-3p , where QD is the quantity of gadgets demanded and p is the price of a gadget in dollars. The market supply is given byQ S=p , where QS is the quantity of gadgets supplied. The production of gadgets releases a toxic effluent into the water supply. The marginal external cost can be described by MEC Q=2Q. a) Compute consumer surplus, producer surplus and the cost pf pollution in the market equilibrium. b) Compute consumer surplus, producer surplus and the cost pf pollution in the social optimum. c) Suppose the government is considering imposing a tax of $T per unit on the producers. Find the level of the tax that ensures the socially optimal amount of gadgets will be produced in a competitive equilibrium.

marooncat628

The market demand for gadgets is given by Q^d=100-3p, where Q^d is the quantity of gadgets demanded and p is the price of a gadget in dollars. The market supply is given byQ^s= p, where Q^s is the quantity of gadgets supplied. The production of gadgets releases a toxic effluent into the water supply. The marginal external cost can be described by MEC(Q)= 2Q.

a) Compute consumer surplus, producer surplus, and the cost of pollution at the market equilibrium.

b) Compute consumer surplus, producer surplus, and the cost of pollution at the social optimum.

c) Suppose the government is considering imposing a tax of $T per unit on the producers. Find the level of the tax that ensures the socially optimal amount of gadgets will be produced in a competitive equilibrium.

chocolategoose43

Question 1

An externality

		enhances market efficiency.
		is a private cost or benefit that results from the production or consumption of a good or service that is external to a market.
		is a benefit or cost that affects someone who is not directly involved in the production or consumption of a good or service.
		refers to production or consumption that occurs outdoors.

5 points

Question 2

Externalities can be produced by:

		the high price of goods and services
		individuals; firms
		market prices; market incomes
		oceans; streams

5 points

Question 3

When an external cost exists that is NOT taken into account in the production of a product,

		the level of output is too high, and the supply curve should shift to the left to account for the externality.
		the price of the product is too high, and production should be expanded to lower the price.
		the level of output is optimal, and there should be no change in the supply curve.
		the level of output is too low, and the supply curve should shift to the right to account for the externality.

5 points

Question 4

Which of the following is correct?

		MSC = MPC - MD
		MPC = MSC + MD
		MSC = MPC + MD
		MD = MSC + MPC

5 points

Question 5

If external costs (costs of cleaning up) are included and added to a firm's private costs, then

		the demand curve will shift to the left.
		the supply curve will shift to the right.
		the demand curve will shift to the right
		the supply curve will shift to the left.

5 points

Question 6

The Coase Theorem states that

		government intervention is always needed if externalities are present.
		assigning property rights is the only thing the government should do in a market economy.
		if transaction costs are low, private bargaining will result in an efficient solution to the problem of externalities.
		a free-market equilibrium is the best solution to address externalities.

5 points

Question 7

Buffalo in the United States almost became extinct while cattle, an animal that provides similar products, never have been close to extinction. The difference is due to

		the use of private property rights on cattle and common property rights on buffalo.
		the greater marginal value of a head of cattle relative to buffalo, leading to over-hunting of buffalo.
		cattle existing in Europe also while buffalo were specific to North America.
		the greater marginal value of a buffalo relative to a steer, leading to the overharvesting of buffalo.

5 points

Question 8

In theory, the Emissions Fee would

		cause firms to generate less pollution than their allowed limits.
		raise the production costs of all firms.
		cause firms to generate more pollution than their allowed limits.
		lower the production costs of all firms.

5 points

Question 9

A cap-and-trade policy

		has a set number of permits.
		allows polluters to trade permits.
		caps the total level of pollution allowed.
		all of the above.

Question 10

A Pigouvian tax corrects for

		market congestion.
		market losses.
		inefficient sales.
		low market prices.

harlequingoldfish8

ECO 201 Lecture Notes - Lecture 13: Tax Incidence, Externality, Gout

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