Econ chapter 10

the socially optimal quantity of output is

73 units

without government intervention, the equilibrium quantity would be

Q3

the social optimum can be reached if

a subsidy of $36 is applied to each unit of the good

Each unit of plastics that is produced results in an external

cost of $8

If this market is currently producing at Q4, then total economic well-being would be maximized if output

decreases to Q2

Suppose planting flowering shrubs creates a positive externality equal to $7 per shrub. Further suppose that the local government offers a $7 per-shrub subsidy to planters. The number of shrubs that are planted is then

equal to the socially optimal quantity

If an externality is present in a market, economic efficiency may be enhanced by

government intervention

negative externalities lead markets to produce

greater than efficient output levels and positive externalities lead markets to produce smaller than efficient output levels

in order to reach the social optimum, the government could

impose a tax of $8 per unit on plastics

When an externality is present, the market equilibrium is

inefficient, and the equilibrium does not maximize the total benefit to society as a whole

in many cases selling pollution permits is a better method for reducing pollution than imposing a corrective tax because

it is hard to estimate the market demand curve and thus charge the "right" corrective tax

This market is characterized by

negative externality

Research into new technologies provides a

positive externality, and too few resources are devoted to research as a result

suppose that cookie producers create a positive externality equal to $2 per dozen. what is the relationship between the equilibrium quantity and the socially optimal quantity of cookies to be produced?

the equilibrium quantity is less than the socially optimal quantity

Suppose that smoking creates a negative externality. If the government does not interfere in the cigarette market, then

the equilibrium quantity of cigarettes smoked will be greater than the socially optimal quantity of cigarettes smoked

suppose that a steel factory emits a certain amount of air pollution, which constitutes a negative externality. if the market does not internalize the externality,

the market equilibrium quantity will not be the socially optimal quantity