Question

A per-unit subsidy can correct a positive externality Consumption of a good creates a positive externality....

A per-unit subsidy can correct a positive externality

Consumption of a good creates a positive externality. Marginal costs are 0.5q + 60, marginal benefits are 110 – 1.5q and marginal social benefits are 110 – 0.5q. Provide a diagram showing the cooperative solution and the private solution. Illustrate and quantify how a per-unit subsidy can be used to correct this externality. Shade in the area representing the total cost to the government providing this subsidy. The subsidy required to correct this externality is equal to ________ dollars per unit.

Business   Economics   
0 0
Add a commentTranscribed image text
Next >

Homework Answers

Answer #1

Graph

With subsidy = 50

New PMC = .5q + 60-50

= .5q + 10

So new PMC cuts PMB at Qs*= 50

So effecient solution is achieved in market

0 0
Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Log In

Sign Up

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
In which of the following situations can an externality be internalized by using the Pigouvian​ subsidy?...
In which of the following situations can an externality be internalized by using the Pigouvian​ subsidy? ​(Check all that​ apply.) A. John likes to play loud music in the middle of the night which disturbs his​ roommate's sleep. B. An orchard is placed next to a beehive.​ So, both the farmer and the beekeeper benefit from each other. C. The pollution caused by a firm has adverse health consequences for nearby residences. D. ​Sophia's flower garden provides a pleasant view...
Suppose that scientists have discovered that the production of honey has a very significant positive externality....
Suppose that scientists have discovered that the production of honey has a very significant positive externality. The main input into honey production, honey bees, are most effective when there are orchards nearby. The bees gather nectar from the orchards and simultaneously pollinate the orchard. This pollination is very valuable to the orchard. However, honey firms (beekeepers) are not compensated for this positive impact on orchards. This positive externality means that the true marginal social value of producing honey is different...
10. If a good creates a negative externality when it is produced, and you have estimated...
10. If a good creates a negative externality when it is produced, and you have estimated that the dollar amount of the externality is $1.50 per unit produced, then one strategy for achieving the efficient, or optimal level of pollution is to: a. subsidise consumers an amount of $1.50 per unit they consume. b. provide a subsidy to producers equal to $1.50 per unit they produce. c. tax producers $1.50 per unit they produce. d. definitely ban production of the...
A competitive refining industry produces one unit of waste for each unit of refined product. The...
A competitive refining industry produces one unit of waste for each unit of refined product. The industry disposes of the waste by releasing it into the atmosphere. The marginal benefit for the refined product is given by MB = 24 - Q, where MB is the marginal benefit when quantity Q of the product is consumed. The inverse supply curve (also the marginal private cost curve) for refining is MPC = 2 + Q, where MPC is the marginal private...
1. Let’s think about a per unit production subsidy. Start with an initial equilibrium price of...
1. Let’s think about a per unit production subsidy. Start with an initial equilibrium price of $5 and quantity of 100 million. Now provide producers with a $1 per unit subsidy. Shade in (the cost of) the subsidy, make up numbers for the new quantity exchanged, the price consumers face (Pc) and the price producers get (Pp). Ideally you can do this without simply copying it from the book... try it over several days until you can. 2. The goal...
A competitive refining industry produces one unit of waste for each unit of refined product. The...
A competitive refining industry produces one unit of waste for each unit of refined product. The industry disposes of the waste by releasing it into the atmosphere. The marginal benefit for the refined product is given by MB = 24 - Q, where MB is the marginal benefit when quantity Q of the product is consumed. The inverse supply curve (also the marginal private cost curve) for refining is MPC = 2 + Q, where MPC is the marginal private...
ADVERTISEMENT
Need Online Homework Help?

Get Answers For Free
Most questions answered within 1 hours.

Ask a Question
ADVERTISEMENT