Question

Graphing Assignment # 4 The city of Crawfordville, Florida has a very bad problem with the mosquito population from late April through late September almost every year. The City generally sprays the mosquito population to deal with the problem. The data below, collected and maintained by the City of Crawfordville’s Finance Department, shows the City’s market data for spraying for mosquitoes. The price is measured in US dollars per spraying and both quantities are measured in the number of spraying events per year, from 2002-2015.

P 80 70 60 50 40 30 20 Qs 14 12 10 8 6 4 2 Qd 2 4 6 8 10 12 14

The Rennert Quantitative Group, LLC, of Davie, Florida, is a firm that specializes in local data collection. The firm at the request of the City Council has studied the Crawfordville population and discovered the City derives a positive externality of $20 for every spraying for mosquitoes.

a. In one clearly and accurately labeled graph, created using Excel, graph the market data as collected by the City Council as well as the market failure that the Rennert Group has discovered. (45 pts)

b. Referencing only your graph, what equilibrium price and quantity does the market generate? (3 pts) c. Referencing only your graph, what is the extent of market failure in this situation? What price and quantity are consistent with an efficient level of spraying? (6 pts)

d. Given that there is market failure, provide one solution for how the efficient level of mosquito spraying can be achieved. (6 pts)

Answer 1

(a)

(b) the price of 50 demand and supply are at a level of equilibrium

(c) the market failure in this case is that the town will not spray often enough for mosquitoes because the market does not take into account the $20 extra in externality. taking the positive externality into account shifts the demand curve upward by $20 at every quantity as shown in graph

instead of purchasing 8 sprayings at a cost $50 per spraying the community will purchae the efficient level of 10 sparayings at a cost of $60 per spraying

(d)

the sprayings can be purchased through subsidization

for example, the buyers will pay the price from demand and then get a $20 rebate from earned revenues to support the externality