Question

If Melanie plants trees in her yard, she receives a marginal benefit of $50 from the first tree, $25 from the second tree, and $10 from the third tree. However, everyone in the neighborhood will receive an additional $30 in social benefits from each of Melanie's trees. If the price of each tree is $20, what number of trees would Melanie plant?

If Melanie plants trees in her yard, she receives a marginal benefit of $50 from the first tree, $25 from the second tree, and $10 from the third tree. However, the neighborhood will receive an additional $30 in social benefits from each of Melanie's trees. If the price of each tree is $20, then the efficient amount (socially optimal number) amount of trees for Melanie and the neighborhood is:

If a market has external costs (negative externalities) then this market will (without any government action) do which of the following?

a. produce more than the optimal (efficient) amount

b. not produce any amount of this product

c. produce the optimal (efficient) amount

d. produce less than the optimal (efficient) amount

e. maximize Social Welfare (Net Gain to Society)

If there are external benefits (postive externalities) then the private sector markets will:

Select one:

a. produce the efficient amount only if a tax is imposed on the producers.

b. produce less than the efficient amount

c. produce the efficient amount

d. produce more than the efficient amount

Answer 1

Q	MPC	Price	MR	MSC
1	50	20	-	30
2	25	40	20	30
3	10	60	20	30

Given her marginal private cost of tree plantation and the price per tree, she will plant 2 trees.

However, given that the marginal social cost of each tree is $30, she will plant 3 trees.

If a market has external costs (negative externalities) then this market will:

(a) produce more than the optimal (efficient) amount

If there are external benefits (positive externalities) then the private sector markets will:

(b) produce less than the efficient amount.