The marginal social cost is the cost of producing an additional unit of a good or service that falls on people other than the producer of the good or service.
Indicate whether the statement is true or false
Ques. 2How do economists define the time period known as the long run?
What will be an ideal response?
Ques. 3A marginal external cost is the cost of producing an additional unit of a good that falls on the producer.
Indicate whether the statement is true or false
Ques. 4Suppose you came across the following headline in a story of a daily newspaper: Automobile prices are so high right now that there must be a shortage. As a consequence not everyone who needs an automobile will be able to buy one.
Is this statement necessarily correct?
Ques. 5Attractive landscaping increases the property values of surrounding homes, creating a marginal benefit. The figure above represents the market for monthly landscaping contracts.
a) What is the marginal social benefit of the 40th contract? Of the 60th contract? b) What is the marginal private benefit of the 40th contract? c) What is the marginal external benefit of the 40th contract? d) What is the unregulated competitive equilibrium price and quantity? e) What is the efficient quantity? f) What is the amount of the deadweight loss?
Ques. 6Define what is meant by the period known as the short run.
What will be an ideal response?
Ques. 7What three things must a firm know in order to calculate costs?
What will be an ideal response?
Ques. 8The above figure shows the market for fertilizer. When fertilizer is applied to lawns, it runs off into neighboring streams and ponds, killing fish and creating an external cost.
a) What is the equilibrium price and quantity of fertilizer in an unregulated, competitive market?
b) What is the efficient quantity of fertilizer?
c) Suppose government imposes a tax equal to the marginal external cost. What is the equilibrium price paid by consumers and the equilibrium quantity after implementation of the tax?
d) At the output level in part (c), how much is the tax?
e) How much tax revenue does government collect?
f) What is the deadweight loss borne by society if the externality is left uncorrected?
Ques. 9Assume that the government of the state of New Jersey has determined that a large number of injuries and deaths have occurred as a result of accidents involving the installation and repairs of electrical equipment at private residences.
In reaction to this problem the state assembly decided to pass a law which made a requirement that all certified electricians take and pass a tougher state licensing examination. Analyze the impact that this law is likely to have on the market for electricians and explain why safety may not necessarily improve.
Ques. 10Suppose unregulated production of pesticides results in an equilibrium price and quantity of 400 and 1,000 tons per day, respectively, and a marginal external cost of 10 a ton.
a) If the government were to eliminate the external cost by using taxes, what should the tax equal?
b) Would the government action described above affect the quantity of pesticides produced? If yes, how? If no, why not?
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