Imagine that there are two people in one room - Mary and Jane. Mary is smoking cigarettes. Thetable below shows Mary's Marginal Private Benefits (MPBM) and Marginal Private Costs(MPCM) of smoking each additional cigarette, as well as Marginal Damages (MDJ) to Jane fromeach additional cigarette:Number of cigarettes smokedMPBMMPCMMDJ11455.52126631076.575697.56741082118.5பa) How many Cigarate is Mary going to smoke? Explain.b) What is the socially optimal number of cigarettes? Explain.c) Suggest a Pigouvian tax that would induce Mary to smoke socially optimal number ofcigarettes?d) Do you think it makes sense to ban smoking in this room altogether? Explain.

Step 1: Step 2: Step 3: Step 4:

Answered: Imagine that there are two people in…

Principles of Economics 2e

2nd Edition

ISBN:9781947172364

Author:Steven A. Greenlaw; David Shapiro

Publisher:Steven A. Greenlaw; David Shapiro

Chapter13: Positive Externalities And Public Goods

Section: Chapter Questions

Problem 24P: Assume that the marginal private costs of a film producing fuel-efficient can; is greater than the...

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EOC 11.04 Two businesses, X and Y, each dump 20 tonnes of pollution into a creek. In an effort to reduce pollution, the government will now require businesses to have a pollution permit to dump pollutants in the creek. Each business receives 10 pollution permits and they can use it to pollute or sell it to the other business (but lose the ability to pollute). To reduce pollution it costs business X $100 per tonne of pollutant eliminated and it costs business Y $50 per tonne of pollutant eliminated. Once the two businesses have traded these permits with each other, what is the likely outcome? Select an answer and submit. For keyboard navigation, use the up/down arrow keys to select an answer. a business X emits 10 tonnes of pollutants and business Y emits 10 tonnes of pollutants. b business X no longer pollutes, and business Y will not lower the amount it pollutes. business X raises its pollution, and business Y will lower how much it pollutes. business Y no longer pollutes, and…
Consider a factory, located in the middle of nowhere, producing a nasty smell. As long as no one is around toexperience the unpleasant odor, are any externalities produced? Suppose that there was family next door to the smelly factory. Do we now have an externalities problem?Suppose that the family clearly possesses the right to a pleasant-smelling environment. Does this mean thatthe factory will be required to stop producing the bad smell? What can be a private solution to this problem?
Monte owns a dog; the dog’s barking annoys Monte’s neighbor, Teresa. Suppose that the benefit of owning the dog is worth $200 to Monte and that Teresa bears a cost of $400 from the barking. Assuming Monte has the legal right to keep the dog, a possible private solution to this problem is that a. Teresa pays Monte $150 to give the dog to his parents who live on an isolated farm. b. Monte pays Teresa $350 for her inconvenience. c. Teresa pays Monte $300 to give the dog to his parents who live on an isolated farm. d. There is no private transaction that would improve this situation.
Suppose that a vaccine is developed for a highly contagious strain of flu. The likelihood that anyone will get this flu decreases as more people receive the vaccine. Price MC 110 100 90 80 60 50 40 20 D-1 D-2 50 75 125 150 200 275 Flu Vaccines What is Consumer Surplus when P = 8O? What is Producer Surplus when P = 80? Policymakers should impose a vaccines. Select one: of on a. tax; 25 b. subsidy; 25 c. tax; 30 d. subsidy; 30
11.05 Unanswered • 2 attempts left Bailey has a dog whose loud barking upsets their neighbour, Harper. Assume that the benefit Bailey gets from the dog is $600 and that Harper incurs a cost of $800 from the dog's barking. If Bailey has the legal right to own the dog what is a private solution for this issue? Harper pays Bailey $599 to give the dog A away. Harper pays Bailey $700 to give the dog В away. Bailey pays Harper $700 to compensate C for her dog's barking. A private solution that improves this scenario is not possible.
Assume that the marginal private costs of a film producing fuel-efficient can; is greater than the marginal social costs. Assume that the marginal private benefits of a firm producing fuel efficient cars are the same as the marginal social benefits. Discuss one wags.r that the government cans ï¬‚y to increase production and sales of fuel efficient cars to the socially desirable amount. Hint: the government is flying to affect production through costs, net benefits.
Jimi loves turning up his electric guitar amp all theway, but his next-door neighbor hates listening tohim. How might Jimi and his neighbor reach a private solution to their problem? Describe potentialproblems that might make it hard for a privatesolution to occur
Felix and Oscar are roommates. Oscar is messy,and Felix is planning to move out unless they cancome to an agreement. For the roommates to reacha private solution, does it matter whether Oscarcompensates Felix for being messy or Felix paysOscar to clean up?
A city currently emits 16 million gallons (MG) of raw sewage into a lake that is beside the city. Table 12.13 shows the total costs (TC) in thousands of dollars of cleaning up the sewage to different levels, together with the total benefits (TB) of doing so. Benefits include environmental, recreational, health, and industrial benefits. TC TB 16 MG Current Current 12 MG 50 800 8 MG 150 1300 4 MG 500 1850 0 MG 1200 2000 Table 12.13 Using the information in Table 12.13 calculate the marginal costs and marginal benefits of reducing sewage emissions for this city. What is the optimal level of sewage for this city? How can you tell?
Imagine that you are a nonsmoker sharing a roomwith a smoker. According to the Coase theorem, whatdetermines whether your roommate smokes in theroom? Is this outcome efficient? How do you andyour roommate reach this solution
Question Four A positive externality of consumption exists if the consumption of a good or service provides spillover benefits to a third part not involved in the consumption. Give an example of a positive externality of consumption and using that example illustrate using a diagram how government can intervene to ensure that socially optimal quantity is consumed. A positive externality of production exists if the production of a good or service provides spillover benefits to a third part not involved in the production. Give an example of a positive externality of production and using that example illustrate using a diagram how government can intervene to ensure that socially optimal quantity is produced.
Can you think of a reason why making cars safer would create negative externalities?

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