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Exam 4: Part A: Market Failures: Public Goods and Externalities

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Question 1

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Demand in a market is represented by the equation, P = 50 - QD.Suppose the market price is $30.(a) How many units do buyers wish to purchase in this market? (b) What is the maximum amount that the buyers are willing to pay for this quantity of output? (c) What is the actual amount that buyers have to pay for this quantity of output? (d) What is the consumer surplus that buyers obtain from purchasing this quantity of output?

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(a) 20 units; (b) $8...

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Question 2

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Draw a supply and demand graph on the below diagram that illustrates the market for pollution rights.Label the axes and curves.Then show what happens to price and quantity when the demand for pollution rights increases in the market.

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Demand increases from D₁ to D₂, which rais...

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Demand is represented by the equation, P = 200 - 2QD and supply by the equation P = 25 + 3QS.(a) Suppose this market produces 30 units of output.What price would this output be sold at if consumers we going to buy all goods? What is the marginal benefit to society of the 30^th unit? What is the marginal cost of the 30^th unit? (b) What is consumer surplus if the market produces 30 units of output? What is producer surplus? What is the sum of consumer and producer surplus? (c) What are the equilibrium price and quantity? (d) What is consumer surplus at equilibrium? What is producer surplus? What is the sum of consumer and producer surplus? (e) Is allocative efficiency achieved when the market produces 30 units of output? Explain in three different ways.

Describe how a market for externality rights would work in terms of supply and demand.

Evaluate.Economy in government requires that government minimize its spending.

What are quasi-public goods and why does the government provide them?

How is consumer surplus derived from a demand curve?

The following table shows marginal costs and benefits of the optimal quantity of pollution abatement that will occur at a local factory. (a) What is the optimal level of pollution abatement? Why? (b) If the marginal benefit of pollution abatement were to increase by $150,000 at each level because of the factory's desire to improve its image and environment, what would the optimal level be? Why? (c) What might cause the optimal level of pollution abatement to be 120 tonnes?

What resource problem is created by positive externalities and what methods are suggested for dealing with this problem?

How do direct controls and specific taxes affect negative externalities? Briefly explain in terms of supply and demand.

Supply in a market is represented by the equation, P = 20 + .1QS.Suppose the market price is $30.(a) How many units do sellers wish to provide in this market? (b) What is the minimum amount that sellers are willing to accept for this quantity of output? (c) What is the actual amount that sellers receive for providing for this quantity of output? (d) What is the producer surplus that sellers obtain for providing this quantity of output?

Demand is represented by the equation, P = 20 - 0.2QD and supply by the equation P = 5 + 0.1QS.(a) Suppose this market produces 40 units of output.What price would this output be sold at? What is the marginal benefit to society of the 40th unit? What is the marginal cost of the 40th unit? (b) What is consumer surplus if the market produces 40 units of output? What is producer surplus? What is the sum of consumer and producer surplus? (c) What are the equilibrium price and quantity? (d) What is consumer surplus at equilibrium? What is producer surplus? What is the sum of consumer and producer surplus? (e) Is allocative efficiency achieved when the market produces 40 units of output? Explain in three different ways.

How is producer surplus derived from a supply curve?

How does the market demand curve for a public good differ from the market demand curve for a private good?

Evaluate: "Pollution is undesirable.Therefore, all pollution should be banned."

Explain the difference between a public and private good.Describe the rationale behind supply and demand analysis for public goods.

Demand in a market is represented by the equation, P = 30 - .5QD.Suppose the market price is $18.(a) How many units do buyers wish to purchase in this market? (b) What is the maximum amount that the buyers are willing to pay for this quantity of output? (c) What is the actual amount that buyers have to pay for this quantity of output? (d) What is the consumer surplus that buyers obtain from purchasing this quantity of output?

How are producer surplus and economic profit related?

Draw a market supply curve and indicate the following: (a) The market price; (b) The quantity supplied; (c) The minimum amount that sellers are willing to accept for the quantity supplied; (d) The actual amount that sellers receive for providing the quantity supplied; (e) The producer surplus from providing the quantity supplied.

What are negative and positive externalities? How do they affect supply and demand curves?