Question

Suppose that cigarette consumption poses a negative externality on society. a. Draw a graph and use...

Suppose that cigarette consumption poses a negative externality on society. a. Draw a graph and use the graph to help explain the impact of this negative externality on social welfare. Is the cigarette market efficient? Why or why not? b. Show graphically and explain how a per unit tax could be placed on cigarettes in order to solve the negative externality.

Homework Answers

Answer #1

If negative externalities are produced when smoking it means marginal social benefits are less than marginal private benefits.In the case of smoking the consumers will not think about the effect of passive smoking on society but only their cost and benefit. The market for smoking has three different market failures and therefore calls for government intervention and market inefficiency.Firstly there is information failure about health risk. Secondly there is information failure about addictive potential of tobacco and thirdly the market failure is the external cost of smoking that is the harm caused to others by smoking.Per unit tax on cigarette will raise the price and reduce consumption.

Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
If cigarette smoking creates a negative consumption externality, then the free market equilibrium quantity will be...
If cigarette smoking creates a negative consumption externality, then the free market equilibrium quantity will be __________ than the socially efficient quantity because ___________. Larger; the free market equilibrium maximizes total surplus Smaller; the harm smokers do to society will reduce demand for cigarettes Larger; cigarette smokers do not internalize the negative effect they have on others Smaller; cigarette smokers do not internalize the negative effect they have on others
Secondhand cigarette smoke is believed to have a negative effect on the health of those who...
Secondhand cigarette smoke is believed to have a negative effect on the health of those who inhale it. These people have chosen not to smoke, but nevertheless are negatively affected by the choice of others to smoke. a) Draw the market for cigarettes showing the demand, the marginal cost, and the marginal social cost of smoking cigarettes if this belief is correct. b) Label the market price and quantity of cigarettes c) Label the efficient quantity (the quantity that reflects...
This question refers to a negative externality (a) Draw and label a diagram to illustrate a...
This question refers to a negative externality (a) Draw and label a diagram to illustrate a negative externality (b) Using your diagram explain the difference between the market and efficient allocations (c) Redraw your diagram and use it to explain why a Pigouvian tax can lead to an efficient allocation. What are the problems with a Pigouvian tax? (d) Draw your diagram a third time and use it to explain Coase Theorem. What are the problems with Coase theorem as...
Old cellular phones generate a negative externality when they are consumed because they lead to environmental...
Old cellular phones generate a negative externality when they are consumed because they lead to environmental damage when they are discarded. Each phone creates a marginal external cost (MEC) of $25 when it is thrown away. Suppose the inverse market demand and supply curve for cell phones are given by: Inverse demand: P = 300 - 3Q Inverse supply: P = 200 + Q a) Calculate the competitive market equilibrium price and quantity b) Calculate the allocatively efficient quantity of...
Question 2 a. Draw a well-labeled graph to illustrate the existence of a negative externality like...
Question 2 a. Draw a well-labeled graph to illustrate the existence of a negative externality like pollution. b. Why do we say a negative externality causes free markets to fail? c. List three, and discuss one, of the weaknesses of “command-and-control regulation” as a means to dealing with an externality like pollution. d. List no less than three, and discuss one, of the market-oriented tools for internalizing externalities
2. Assume the market for cigarettes is perfect competition with ordinary demand and supply curves. Assume...
2. Assume the market for cigarettes is perfect competition with ordinary demand and supply curves. Assume there are no production externalities, but there are substantial negative consumption externalities, including a variety of lethal diseases and a general threat to health for both smokers and people exposed to second-hand smoke. A. Show the market in equilibrium in a graph, explain why this is not the socially optimal equilibrium. B. Show the optimal equilibrium and identify any efficiency gains relative to the...
Cigarettes in Australia have long been subject to excise tax – a per cigarette tax levied...
Cigarettes in Australia have long been subject to excise tax – a per cigarette tax levied on the suppliers of cigarettes. (The tax applies to all tobacco products, however for the purposes of this exam assume cigarette and tobacco consumption are the same thing). In 2016 the federal government announced that the excise tax rate for cigarettes would rise by 12.5% a year for the next 4 years. Over this period tax revenue collected from the sale of cigarettes has...
(c) Draw a diagram to illustrate the case of perfect competition where there is a negative...
(c) Draw a diagram to illustrate the case of perfect competition where there is a negative production externality. Show how, if the production externality is ignored, output will differ compared to the alternative where society’s needs are taken into account. Explain briefly how a tax could be relevant in achieving the social optimum (a) Sketch the Average Fixed Cost curve for a firm, and explain why it is the shape you have shown it. (b) Explain why it might be...
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...
Suppose officials in the U.S. want to reduce the national cigarettes consumption from the current 400...
Suppose officials in the U.S. want to reduce the national cigarettes consumption from the current 400 billion to 300 billion cigarette packs per year. They propose two workable solutions that would each bring about such a reduction of 100 billion cigarette packs sold and purchased. Option 1 is to place a tax on every cigarette pack sold. Option 2 is to impose a price floor on what consumers have to pay for a pack of cigarettes. (a) Provide a separate...
ADVERTISEMENT
Need Online Homework Help?

Get Answers For Free
Most questions answered within 1 hours.

Ask a Question
ADVERTISEMENT