Additional Questions. Externalities and Public Goods.

Save this PDF as:

Size: px
Start display at page:

Transcription

1 Additional Questions. Externalities and Public Goods. Problem 1. The purpose of this problem is to help you understand the difference in market demand for purely private and purely public good. For each of the following situations suppose that private marginal benefits are given by MP B = 10 Q, where Q is the quantity of a good, keep in mind that MP B measures the maximum price a person will be willing to pay for an additional unit of the good. a) Suppose the good is purely private, for example, apples. On a diagram plot individual demand for apples and construct market demand for apples if there are two consumers in the market. Market demand for private good is obtained by adding quantities demanded at each price. You can construct market demand by points: at price P = 10 none of the consumers is willing to purchase any quantity, then total quantity demanded is Q = 0, this is the first point on your diagram (0,10); at P = 9 each person will demand 1 apple and the total quantity demanded in the market is 2 1 = 2, the second point is (2; 9) and so on. You can also use algebra: from the MPB you can find individual quantity demanded as a function of price Q 1 = 10 P is demand by the first person and Q 2 = 10 P is quantity purchased by the second person at each price; market demand is the sum of individual quantities Q M = Q 1 +Q 2, substitute the expressions for the individual demands (plug 10-P for Q 1 and Q 2 ) which will give you Q M = 10 P + 10 P, simplify to Q M = 20 2P and single out price as a function of Q M. Both methods give you exactly the came market demand curve: P = 10.5Q M where Q M is the total quantity demanded at each price. Notice that the market demand curve has the same vertical intercept as individual demands, has half of the slope and twice the horizontal intercept. b) Suppose the good is purely public, for example a street lights installed in the neighborhood. On a diagram plot private marginal benefits and construct market demand for the public good if there are two consumers. Pure public good is nonexcludable and nonrival in consumption. Nonexcludable means that if one of the consumers purchases one unit of the good, the other consumer will be able to consume that unit as well and there is no way to preclude the second consumer from enjoying the benefits. Nonrival means that the fact that the second person is consuming the good does not diminish the benefits to the first person. When you construct the market demand for public good use the notion of maximum amount all consumers will be willing to pay in order to purchase an additional unit. You can construct the market demand curve by points: for example, for the first unit Q = 1 of the good each of the consumers is willing to pay P=9 dollars, it means that the maximum that both will be willing to pay in order to install the first unit of the public good is 18, so one of the points on the market demand for the public good is (1, 18); for the second unit one person will pay up to 8 dollars, max. that two will pay is 16, the second point is (2, 16) etc. You can also notice that when you construct market demand for public good 1

4 proportionally: people with higher MB of trees should be paying more. This potentially creates a problem: if people know that their contributions will be proportional to their MBs, they have an incentive to lie and pretend they do not care about the trees at all so that they will not contribute, but will still enjoy the benefits. Problem 3. Externalities, Efficiency, and Property Rights. Alfred and Ben share an apartment. Alfred likes loud music and Ben does not. Suppose that music imposes an increasing marginal cost on Ben MEC = Q where MEC is dollars and Q is hours of loud music. Alfred s marginal value of each hour of loud music measured in dollars is MP B = 10 Q. (a) Represent this situation on diagram. Show efficient consumption of loud music and situation when Alfred listens to loud music as much as he wants. Since you are not given any info about private costs, assume MPC=0; On his own Alfred will consume where his MPB=MPC, Q=10. For efficiency we need MSC=MSB. MSC = MEC and MSB = MP B, efficient consumption of loud music is 5 hours, at Q=5 MSB=10-5=5=MSC. Welfare in unregulated outcome: DWL=25 Alfred s total benefits from the music=total value of 10 hours=50, denote U A = 50, Ben s total costs are summation of MEC from each hour=area under MEC, which is 50, denote U B = 50. (b) Suppose that there are no legal restrictions on volume of music and Alfred has a right to listen to music as loud as he wants and as much as he wants. Ben approaches Alfred with an offer to pay money for reducing the number of hours of the loud music. Will negotiations achieve efficient outcome? For simplicity suppose both guys know that if there is no agreement Alfred will listen to music for 10 hours. Negotiations will work as follows. For each hour when Alfred does not turn up the volume Ben will be willing to offer payment up to the amount of the marginal cost imposed on Ben. For example 10 th hour causes Ben MEC=10, meaning that it makes Ben so sick he will pay up to 10 dollars to avoid it. Alfred s marginal value of 10 th hour is MP B = = 0, meaning that he will accept any payment in order to give up the last hour of music. Clearly they can agree on some payment that will make both better off. They will continue negotiations until price that Ben is willing to pay is equal to price that Alfred is willing to accept, which happens at 5 hours of music, which is the efficient level of consumption. Suppose that Ben paid 5 dollars for each hour of music reduction. Let s calculate guys welfare in this case: U A = = 62.5, which is Alfred s total value of 5 hours consumed 2 + payment from Ben. Ben s utility U B = = 37.5, which is total damage from 5 hours of music and the payment. Notice what happened: both are better off compared to situation when Alfred listened to music for 10 hours, and sum of each guys increase in welfare = DWL, this means that during negotiations they managed to capture the efficiency loss brought about by the externality. Actual price for which the externality is traded does not have to be \$5/hour and is indeterminate - there are many prices that will be acceptable for both guys, but regardless of the price at least one of them will benefit from reducing level of music while the other one will not be hurt. 2 Total value = area under D curve for the quantity consumed. 4

5 Internalizing the externality in this case works as follows. although Alfred does not have to pay any price in order to listen to music, possibility of getting paid for not listening creates the opportunity cost, which as you remember is a part of economic costs: every time Alfred listens to 1 hour of music he loses an opportunity to get some money from Ben. (c) Suppose Ben has a right for quiet environment. This means that loud music is legal, but Ben has a right to prohibit Alfred from playing music loudly any time. Suppose Alfred approaches Ben with an offer to compensate Ben for each hour of loud music. Will negotiations reach efficient outcome? In order for Ben to accept an offer the compensation per hour should be at least as high as MEC, for example the minimum he will accept for the first hour is 1 dollar etc. Alfred will only pay up to his marginal value of the music, for the first hour he will pay about 9 dollars. Clearly it is possible for both to benefit from trading on the first hour. Alfred will purchase 5 hours of music in total: all gains are exploited when price that Alfred is willing to pay for one more hour is equal to price that Ben is willing to accept. Let s again calculate welfare assuming that Alfred paid 5 dollars per each hour. U A = 12.5, which is his consumer surplus = TV-payment, Ben s welfare U B = 12.5, which is the payment he received minus the cost of the music. (d) Compare parts (b) and (c) and make a conclusion. If you did everything correctly you already know that in both cases the level of music is the same and it is efficient. The difference is apparently in who pays. Notice that whoever has property rights is in advantageous position and will be able to gain from selling the rights. (e) Discussion. This problem is a demonstration of Coase theorem. Explain how does Coase theorem apply to the situation described in this problem. Can you think of any reasons why negotiations may fail between Ben and Alfred? Coase theorem: when there is small number of parties involved, transaction costs are zero, there is no hidden information and property rights are clearly defined, private parties will achieve efficient solution even if externality is present. More or less obvious reason for unsuccessful negotiations is asymmetric information: if guys do not know each other s costs and benefits they might not reach an agreement. Transaction costs/contract enforcement - what if Alfred takes money from Ben and then cheats and listens to music anyways? Notice that if guys lived in a residence building where half of people loved loud music and the other half did not, transaction costs would be extremely high and even if property rights were defined, it would be very hard to reach efficient solution. Discussion Questions 1. Summarize the main differences between pure private and pure public goods. Explain why in case of pure public goods private markets are likely to fail to achieve efficiency. 2. Is pollution abatement a public good? Explain your answer. 5

Economics 325: Public Economics Section A01 University of Victoria Midterm Examination #1 VERSION 1

Economics 325: Public Economics Section A01 University of Victoria Midterm Examination #1 VERSION 1 Section 1: Multiple Choice (3 points each) Select the most appropriate answer, and circle the corresponding

ECONOMICS 103. Topic 5: Externalities. External costs and benefits

ECONOMICS 103 External costs and benefits Topic 5: Externalities Marginal external costs, marginal external benefits Marginal social costs and benefits v marginal private costs and benefits Environmental

a. Find MG&E s marginal revenue function. That is, write an equation for MG&E's MR function.

Economics 101 Spring 2015 Answers to Homework #5 Due Thursday, May 7, 2015 Directions: The homework will be collected in a box before the lecture. Please place your name on top of the homework (legibly).

Unit 8.1: Externalities

Unit 8.1: Externalities Michael Malcolm June 18, 2011 1 Market Failure Market Failure occurs when the free market outcome is not efficient. The first welfare theorem establishes that, in general, competitive

Economics 101 Fall 2013 Answers to Homework #6 Due Tuesday, Dec 10, 2013

Economics 101 Fall 2013 Answers to Homework #6 Due Tuesday, Dec 10, 2013 Directions: The homework will be collected in a box before the lecture. Please place your name, TA name and section number on top

Externalities. 5 Microeconomics ACTIVITY 5-2

ACTIVITY 5-2 Externalities A market externality refers to a situation where some of the costs or benefits from an activity fall on someone other than the people directly involved in the activity. Externalities

Consumer and Producer Surplus and Deadweight Loss

Consumer and Producer Surplus and Deadweight Loss The deadweight loss, value of lost time or quantity waste problem requires several steps. A ceiling or floor price must be given. We call that price the

AP Microeconomics Chapter 4 Outline

I. Learning Objectives In this chapter students should learn: A. How to differentiate demand-side market failures and supply-side market failures. B. The origin of consumer surplus and producer surplus,

A01 325: #1 VERSION 2 SOLUTIONS

Economics 325: Public Economics Section A01 University of Victoria Midterm Examination #1 VERSION 2 SOLUTIONS Fall 2012 Instructor: Martin Farnham Midterm Exam #1 Section 1: Multiple Choice Each question

Economics 101 Spring 2017 Answers to Homework #5 Due Thursday, May 4, 2017

Economics 101 Spring 2017 Answers to Homework #5 Due Thursday, May 4, 2017 Directions: The homework will be collected in a box before the lecture. Please place your name, TA name and section number on

Externalities, Public Goods, Imperfect Information, and Social Choice

Chapter 15 Externalities, Public Goods, Imperfect Information, and Social Choice Prepared by: Fernando & Yvonn Quijano 2007 Prentice Hall Business Publishing Principles of Economics 8e by Case and Fair

Area VI. Area II + IV + VI. Area II. Area I + III + V. Area III + V

Fall 2011 Economics 431 Final Exam Name Question 1. (30 points) The Coase Theorem A firm pollutes a local river and causes damage to a swim club downstream. The line MB represents the firms Marginal Benefit

Perfectly Competitive Markets, Market Equilibrium, Welfare Economics, Efficiency, and Market Failure

Perfectly Competitive Markets, Market Equilibrium, Welfare Economics, Efficiency, and Market Failure Markets--Putting Market Supply and Market Demand Together So far in this course, we have studied consumers

The Basic Spatial Model with a Single Monopolist

Economics 335 March 3, 999 Notes 8: Models of Spatial Competition I. Product differentiation A. Definition Products are said to be differentiated if consumers consider them to be imperfect substitutes.

Midterm 2 Sample Questions. Use the demand curve diagram below to answer the following THREE questions.

! Midterm 2 Sample uestions Use the demand curve diagram below to answer the following THREE questions. 8 6 4 2 4 8 12 16 1. What is the own-price elasticity of demand as price decreases from 6 per unit

Externalities, Property Rights and Public Goods

Externalities, Property Rights and Public Goods Economics 302 - Microeconomic Theory II: Strategic Behavior Instructor: Songzi Du compiled by Shih En Lu Simon Fraser University April 4, 2016 ECON 302 (SFU)

Externalities, Property Rights and Public Goods

Externalities, Property Rights and Public Goods Economics 302 - Microeconomic Theory II: Strategic Behavior Instructor: Songzi Du compiled by Shih En Lu Simon Fraser University July 29, 2018 ECON 302 (SFU)

PUBLIC CHOICES, PUBLIC GOODS, AND HEALTHCARE

Chapt er 16 PUBLIC CHOICES, PUBLIC GOODS, AND HEALTHCARE Key Concepts Public Choices All economic choices are made by individuals but some are private choices and some are public choices. Private choices

Econ351 Lecture 2. Review of Main Economic Concepts

Econ351 Lecture 2. Review of Main Economic Concepts Lecture outline Rationality Consumer surplus Costs (opportunity costs, social vs. private costs, sunk costs) Efficiency (productive and allocative) Compensated

CH 21: Externalities & Market Failure. Lecture

CH 21: Externalities & Market Failure Lecture Market Failure Market failure: a situation in which the free market system fails to satisfy society s wants (when the invisible hand does not work) 3 sources

Thursday, October 13: Short and Long Run Equilibria

Amherst College epartment of Economics Economics 54 Fall 2005 Thursday, October 13: Short and Long Run Equilibria Equilibrium in the Short Run The equilibrium price and quantity are determined by the market

Externalities C H A P T E R C H E C K L I S T. When you have completed your study of this chapter, you will be able to

Externalities CHAPTER9 C H A P T E R C H E C K L I S T When you have completed your study of this chapter, you will be able to 1 Explain why negative externalities lead to inefficient overproduction and

Externalities, Public Goods, Im perfectinformation,and SocialChoice. Market Failure. Externalities and Environmental Economics

C H A P T E R 14 Externalities, Public Goods, Imperfect Information, and Social Choice Prepared by: Fernando Quijano and Yvonn Quijano Market Failure Market failure occurs when resources are misallocated

6) Consumer surplus is the red area in the following graph. It is 0.5*5*5=12.5. The answer is C.

These are solutions to Fall 2013 s Econ 1101 Midterm 1. No guarantees are made that this guide is error free, so please consult your TA or instructor if anything looks wrong. 1) If the price of sweeteners,

Externalities and the Environment

Externalities and the Environment What is an Externality? When a person/firm does something that affects the interests of another person or firm without affecting prices. Examples: Traffic/telephone/internet

Selected brief answers for review questions for first exam, Fall 2006 AGEC 350 Don't forget, you may bring a 3x5" notecard to the exam.

1 Selected brief answers for review questions for first exam, Fall 2006 AGEC 350 Don't forget, you may bring a 3x5" notecard to the exam. These are brief answers intended to help you find the complete

Professor Christina Romer SUGGESTED ANSWERS TO PROBLEM SET 2

Economics 2 Spring 2018 rofessor Christina Romer rofessor David Romer SUGGESTED ANSWERS TO ROBLEM SET 2 1.a. In this problem we are dividing everything the household buys into two categories child care

Chapter 18. Externalities and Public Goods. Externalities. Negative Externalities. Positive Externalities

Chapter 18 Externalities and Public Goods Externalities Externalities are the effects of production and consumption activities not directly reflected in the market They can be negative or positive Chapter

FINAL EXAMINATION VERSION B

William M. Boal Signature: Printed name: FINAL EXAMINATION VERSION B INSTRUCTIONS: This exam is closed-book, closed-notes. Calculators, mobile phones, and wireless devices are NOT permitted. Point values

Economics 101 Fall 2017 Answers to Homework 5 Due:12/12/17

Economics 101 Fall 2017 Answers to Homework 5 Due:12/12/17 Directions: The homework will be collected in a box before the lecture. Please place your name, TA name, and section number on top of the homework

CASE FAIR OSTER. Externalities, Public Goods, and Social Choice. Externalities and Environmental Economics

PEARSON PRINCIPLES OF MICROECONOMICS E L E V E N T H E D I T I O N CASE FAIR OSTER Prepared by: Fernando Quijano w/shelly 1of Tefft 43 2of 43 Externalities, Public Goods, and Social Choice 16 Externalities

Also, big thank you to fellow TA Enoch Hill for edits and some additions to the guide.

Hello class, once again, here s an unofficial guide to the sample midterm. Please use this with caution, since 1) I am prone to error so incorrect explanations are entirely possible and 2) you should do

ECONOMICS 103. Topic 3: Supply, Demand & Equilibrium

ECONOMICS 103 Topic 3: Supply, Demand & Equilibrium Assumptions of the competitive market model: all agents are price takers, homogeneous products. Demand & supply: determinants of demand & supply, demand

CHAPTER 4, SECTION 1

DAILY LECTURE CHAPTER 4, SECTION 1 Understanding Demand What Is Demand? Demand is the willingness and ability of buyers to purchase different quantities of a good, at different prices, during a specific

Micro Lecture 19: Externalities and Efficiency

Micro Lecture 19: Externalities and Efficiency Externalities Another Example of a Market Failure We have already seen how monopoly leads to inefficiency. That is, monopoly causes a market fail, the market

Chapter 10: Monopoly

Chapter 10: Monopoly Answers to Study Exercise Question 1 a) horizontal; downward sloping b) marginal revenue; marginal cost; equals; is greater than c) greater than d) less than Question 2 a) Total revenue

Econ 325: Environmental and Natural Resource Economics Fall 2007 Problem Set 2. Due in class: Tuesday October 2, 2007

Econ 325: Environmental and Natural Resource Economics Fall 2007 Problem Set 2 17 total points Due in class: Tuesday October 2, 2007 Instructions: Answer all 6 questions. Feel free to use Microsoft Excel

Topic 3. Demand and Supply

Econ 103 Topic 3 page 1 Topic 3 Demand and Supply Text reference: Chapter 3 and 4. Assumptions of the competitive model. Demand: -Determinants of demand -Demand curves -Consumer surplus -Divisibility -

Professor Christina Romer SUGGESTED ANSWERS TO PROBLEM SET 3

Economics 2 Spring 2018 rofessor Christina Romer rofessor David Romer SUGGESTED ANSWERS TO ROBLEM SET 3 1.a. A monopolist is the only seller of a good. As a result, it faces the downward-sloping market

Econ 201 Review Notes - Part 3

Econ 201 Review Notes - Part 3 This is intended as a supplement to the lectures and section. It is what I would talk about in section if we had more time. After the first three chapters where we talked

The economics of competitive markets Rolands Irklis

The economics of competitive markets Rolands Irklis www. erranet.org Presentation outline 1. Introduction and motivation 2. Consumer s demand 3. Producer costs and supply decisions 4. Market equilibrium

c) Will the monopolist described in (b) earn positive, negative, or zero economic profits? Explain your answer.

Economics 101 Summer 2015 Answers to Homework #4b Due Tuesday June 16, 2015 Directions: The homework will be collected in a box before the lecture. Please place your name, TA name and section number on

I. An Introduction to Externalities and Market Failures. II. Externalities. EC 441: Handout 5A: Externalities and Solutions

I. An Introduction to Externalities and Market Failures A. The first part of the course addressed how a governments efforts to raise its revenues and its associated pattern of expenditures affect private

MPC MPC. Under a Pigouvian subsidy, s, the firm s MPC curve shifts up to MPC = MPC + s. This is less

Old Exam Solutions Question 1 (worth 17 points) Consider a firm producing a quantity Q of a product that generates a negative externality. The firm has a downward-sloping marginal benefit (MB) curve associated

Chapter. Externalities CHAPTER CHECKLIST

Externalities Chapter CHAPTER CHECKLIST An externality in an unregulated market leads to inefficiency and creates a deadweight loss. Chapter 9 explains the role of the government in markets where an externality

This exam has 33 points. There are six questions on the exam; you should work all of them. Half the questions are worth 5 points each and the other

Economics 5250/6250 Fall 2017 Dr. Lozada Midterm Exam This exam has 33 points. There are six questions on the exam; you should work all of them. Half the questions are worth 5 points each and the other

FINAL EXAMINATION VERSION A May 2012

William M. Boal Signature: Printed name: FINAL EXAMINATION VERSION A May 2012 INSTRUCTIONS: This exam is closed-book, closed-notes. Simple calculators are permitted, but graphing calculators or calculators

FINAL EXAMINATION VERSION C May 2012

William M. Boal Signature: Printed name: FINAL EXAMINATION VERSION C May 2012 INSTRUCTIONS: This exam is closed-book, closed-notes. Simple calculators are permitted, but graphing calculators or calculators

Vertical Mergers. The retailer has marginal cost of Pu+lOO where PU is the price per unit charged by the upstream manufacturer Grapefruit.

Vertical Mergers Suppose that Grapefruit Computers makes a unique product that is distributed exclusively by the retailer Better Buy. Both firms act as monopolists to maximize their profits. Consumers

ECON 200. Introduction to Microeconomics Homework 4

ECON 200. Introduction to Microeconomics Homework 4 [Multiple Choice] Name: 1. Which of the following is an example of a positive externality? (c) a. Bob mows Hillary s lawn and is paid \$100 for performing

Lecture 6. Externalities. 1 gkaplanoglou public finance

Lecture 6 Externalities 1 gkaplanoglou public finance 2017-2018 2 Externality Defined An externality is present when the activity of one entity (person or firm) directly affects the welfare of another

Perfect Competition Definition

Perfect Competition Definition What is the essence of perfect competition? All agents in the market take the relevant price for this market as given. That is, all agents assume that their behaviour will

a) I, II and III. b) I c) II and III only. d) I and III only. 2. Refer to the PPF diagram below. PPF

1. Suppose that - at a given level of an economic activity - marginal social cost is greater than marginal social benefit. Which of the following statements is TRUE? I. Social surplus would be higher at

THE PENNSYLVANIA STATE UNIVERSITY Department of Economics. Sample final exam Fall 2018

THE PENNSYLVANIA STATE UNIVERSITY Department of Economics Economics 428 Gallant Sample final exam Fall 2018 There are about nine more questions on this sample final exam than there would be on an actual

17 EXTERNALITIES. Chapt er. Key Concepts. Externalities in Our Lives

Chapt er 17 EXTERNALITIES Key Concepts Externalities in Our Lives An externality is a cost or benefit that arises from production and falls on someone other than the producer or a cost or benefit that

Professor Christina Romer SUGGESTED ANSWERS TO PROBLEM SET 2

Economics 2 Spring 2016 rofessor Christina Romer rofessor David Romer SUGGESTED ANSWERS TO ROBLEM SET 2 1.a. Recall that the price elasticity of supply is the percentage change in quantity supplied divided

Anderson, PUBLIC FINANCE Chapter 4 End-of-chapter problems with solutions

Anderson, PUBLIC FINANCE Chapter 4 End-of-chapter problems with solutions 1 1. In which of the following situations is the Coase Theorem likely to apply? Explain. a. The neighbor who lives below you in

ECON 101 KONG Midterm 2 CMP Review Session. Presented by Benji Huang

ECON 101 KONG Midterm 2 CMP Review Session Presented by Benji Huang Chapter 5 Efficiency and Equity Benefit, Cost, Surplus Consumers (1) A consumer benefits from the consumption of a product this benefit

University of Victoria. Economics 325 Public Economics

University of Victoria Economics 325 Public Economics Martin Farnham Problem Set #2 Note: Answer each question as clearly and concisely as possible. Use of diagrams, where appropriate, is strongly encouraged.

Econ 381/ES312 Midterm 2: Sample Questions

Econ 381/ES312 Midterm 2: Sample Questions 1. Suppose there are two polluting firms with marginal abatement costs given by: MCA1 = - (1/40)E1; and MCA2 = 5 - (1/80)E2. These marginal abatement cost curves

Introduction: What is the role of public finance? Efficiency of Markets: How and When Reasons for Market Failures. Externalities Public Goods

Public Goods, Externalities, and the Role of Government Francesco Saraceno OFCE-Research Center in Economics of Sciences Po Luiss School of European Political Economy Jakarta School of Government and Public

1. True or False. If the marginal product of labor is decreasing, then the average product of labor must also be decreasing. Explain.

ECO 220 Intermediate Microeconomics Professor Mike Rizzo Second COLLECTED Problem Set SOLUTIONS This is an assignment that WILL be collected and graded. Please feel free to talk about the assignment with

Chapter 17. Externalities, Open Access, and Public Goods

Chapter 17 Externalities, Open Access, and Public Goods There s so much pollution in the air now that if it weren t for our lungs there d be no place to put it all. Robert Orben Chapter 17 Outline 17.1

2. THEORIES OF EXTERNALITIES

2/17/19 2. THEORIES OF EXTERNALITIES Public Finance, 10 th Edition David N. Hyman; Chapter 3 Adapted by Chairat Aemkulwat for Theory of Public Expenditures 2943410 Outline: Lecture 2 THEORIES OF EXTERNALITIES

Managerial Economics Prof. Trupti Mishra S.J.M School of Management Indian Institute of Technology, Bombay. Lecture -29 Monopoly (Contd )

Managerial Economics Prof. Trupti Mishra S.J.M School of Management Indian Institute of Technology, Bombay Lecture -29 Monopoly (Contd ) In today s session, we will continue our discussion on monopoly.

FINAL EXAMINATION VERSION A

William M. Boal Signature: Printed name: FINAL EXAMINATION VERSION A INSTRUCTIONS: This exam is closed-book, closed-notes. Simple calculators are permitted, but graphing calculators or calculators with

Externality Essentials Revised

Micro Externality Essentials Revised Why we love markets Markets help achieve productive, allocative, and distributive efficiency. o Productive, allocative, and distributive efficiency are required to

P S1 S2 D2 Q D1 P S1 S2 D2 Q D1

This is the solution guide compiled by your instructors of Econ 1101. This is a guide for form A. If you had form B, you can still figure from this guide what the answers to your questions are. If you

Individual & Market Demand and Supply

Mr Sydney Armstrong ECN 1100 Introduction to Microeconomic Lecture Note (3) Individual & Market Demand and Supply The tools of demand and supply can take us a far way in understanding both specific economic

This is the midterm 1 solution guide for Fall 2012 Form A. 1) The answer to this question is A, corresponding to Form A.

This is the midterm 1 solution guide for Fall 2012 Form A. 1) The answer to this question is A, corresponding to Form A. 2) Since widgets are an inferior good (like ramen noodles) and income increases,

ECON 2100 Principles of Microeconomics (Fall 2018) Externalities

ECON 21 Principles of Microeconomics (Fall 218) Externalities Relevant readings from the textbook: Mankiw, Ch. 1 Externalities Suggested problems from the textbook: Chapter 1 Quick Quiz Multiple Choice

Text: Reader, based on Griffin and two journal articles

Chapter B) Market-failure, efficiency, and government intervention Text: Reader, based on Griffin 2.7-2.10 + 4.1-4.6 + 5.1-5.7 + 8.1-8.6 and two journal articles This chapter is organized as: Lesson 1:

Economics 381/Environmental Studies 312 Review Assignment

Economics 381/Environmental Studies 312 Review Assignment This Review Assignment is worth 5% of your grade. The purpose of this part of the assignment is twofold. First, it is designed to help you recall

Text transcription of Chapter 4 The Market Forces of Supply and Demand

Text transcription of Chapter 4 The Market Forces of Supply and Demand Welcome to the Chapter 4 Lecture on the Market Forces of Supply and Demand. This is the longest chapter for Unit 1, with the most

Your Name: UM uniquename. Ford School of Public Policy 555: Microeconomics A Fall 2011 Placement Exam Professor Kevin Stange

Your Name: UM uniquename Ford School of Public Policy 555: Microeconomics A Fall 2011 Placement Exam Professor Kevin Stange This exam has 8 questions and spans the topics we expect to cover in the course.

Price MCI MSC MEC. q1 Firm output. Industry output

Pindyck and Rubinfeld, Chapter 18 Sections 18.1, 18.2, 18.6 Externalities and Public goods Externalities arise when one agent s production or consumption activities affect another agent s production or

Policy Evaluation Tools. Willingness to Pay and Demand. Consumer Surplus (CS) Evaluating Gov t Policy - Econ of NA - RIT - Dr.

Policy Evaluation Tools Evaluating Gov t Policy - Econ of NA - RIT - Dr. Jeffrey Burnette In economics we like to measure the impact government policies have on the economy and separate winners and losers.

Public Goods and Common Resources

Public Goods and Common Resources Chapter CHAPTER CHECKLIST Chapter 11 studies the types of goods and services provided by the government. Distinguish among private goods, public goods, and common resources.

MICROECONOMIC FOUNDATIONS OF COST-BENEFIT ANALYSIS. Townley, Chapter 4

MICROECONOMIC FOUNDATIONS OF COST-BENEFIT ANALYSIS Townley, Chapter 4 Review of Basic Microeconomics Slides cover the following topics from textbook: Input markets. Decision making on the margin. Pricing

Chapter 11 Perfect Competition

Chapter 11 Perfect Competition Introduction: To an economist, a competitive firm is a firm that does not determine its market price. This type of firm is free to sell as many units of its good as it wishes

Game Theory and Economics Prof. Dr. Debarshi Das Department of Humanities and Social Sciences Indian Institute of Technology, Guwahati

Game Theory and Economics Prof. Dr. Debarshi Das Department of Humanities and Social Sciences Indian Institute of Technology, Guwahati Module No. # 03 Illustrations of Nash Equilibrium Lecture No. # 01

Top 10 Most Common Errors AP Economics 2011

Top 10 Most Common Errors AP Economics 2011 Overview of Trouble Spots 11. Finding the Socially Optimal Quantity 10. Deadweight Loss from a Positive Externality 9. Allocative Efficiency 7. Price Elasticity

knows?) What we do know is that S1, S2, S3, and S4 will produce because they are the only ones

Guide to the Answers to Midterm 1, Fall 2010 (Form A) (This was put together quickly and may have typos. You should really think of it as an unofficial guide that might be of some use.) 1. First, it s

Lesson-28. Perfect Competition. Economists in general recognize four major types of market structures (plus a larger number of subtypes):

Lesson-28 Perfect Competition Economists in general recognize four major types of market structures (plus a larger number of subtypes): Perfect Competition Monopoly Oligopoly Monopolistic competition Market

A. All sellers who want to sell at the equilibrium price can find a buyer to sell to.

Chapter 02 Supply and Demand Multiple Choice Questions 1. Which is not true of market equilibrium? A. All sellers who want to sell at the equilibrium price can find a buyer to sell to. B. It is the most

CHAPTER 5 FIRM PRODUCTION, COST, AND REVENUE

CHAPTER 5 FIRM PRODUCTION, COST, AND REVENUE CHAPTER OBJECTIVES You will find in this chapter models that will help you understand the relationship between production and costs and the relationship between

Chapter 2: The Basic Theory Using Demand and Supply. Multiple Choice Questions

Chapter 2: The Basic Theory Using Demand and Supply Multiple Choice Questions 1. If an individual consumes more of good X when his/her income doubles, we can infer that a. the individual is highly sensitive

Unit 2: Theory of Consumer Behaviour

Name: Unit 2: Theory of Consumer Behaviour Date: / / Notations and Assumptions A consumer, in general, consumes many goods; but for simplicity, we shall consider the consumer s choice problem in a situation

Chapter. The Economic Problem CHAPTER IN PERSPECTIVE

The Economic Problem Chapter CHAPTER IN PERSPECTIVE Chapter studies the production possibilities frontier, PPF. The PPF shows how the opportunity cost of a good or service increases as more of the good

November 17, 2009 90 minutes No calculators, no aids allowed. Economics 103 Second Midterm Dr. J. Friesen ANSWER KEY Multiple Choice. 3 marks each. Indicate your answers on the bubble sheet provided. 1)

Should Consumers Be Priced Out of Pollution-Permit Markets?

Should Consumers Be Priced Out of Pollution-Permit Markets? Stefani C. Smith and Andrew J. Yates Abstract: The authors present a simple diagrammatic exposition of a pollutionpermit market in which both

Economics 102 Summer 2015 Answers to Homework #2 Due Tuesday, June 30, 2015

Economics 102 Summer 2015 Answers to Homework #2 Due Tuesday, June 30, 2015 Directions: The homework will be collected in a box before the lecture. Please place your name on top of the homework (legibly).

Chapter 8: Exchange. 8.1: Introduction. 8.2: Exchange. 8.3: Individual A s Preferences and Endowments

Chapter 8: Exchange 8.1: Introduction In many ways this chapter is the most important in the book. If you have time to study just one, this is the one that you should study (even though it might be a bit

Unit 2 Economic Models: Trade-offs and Trade Objectives Why models simplified representations of reality play a crucial role in economics Two simple but important models: the production possibility frontier

Notes on Chapter 10 OUTPUT AND COSTS

Notes on Chapter 10 OUTPUT AND COSTS PRODUCTION TIMEFRAME There are many decisions made by the firm. Some decisions are major decisions that are hard to reverse without a big loss while other decisions

Government Intervention - Taxes and Subsidies (SOLUTIONS)

Government Intervention - Taxes and Subsidies (SOLUTIONS) (HL Economics - Messere) 1. a) Price (\$) Qd = 0 2P Qs = -50 + 4P 0 0-50 80-20 60 30 30 40 70 40 20 1 Price (\$) 50 40 Supply 30 20 Demand 0 20 30

Chapter 10 Consumer Choice and Behavioral Economics

Microeconomics Modified by: Yun Wang Florida International University Spring 2018 1 Chapter 10 Consumer Choice and Behavioral Economics Chapter Outline 10.1 Utility and Consumer Decision Making 10.2 Where

Midterm Exam (10 points) What are the requirements of the First Welfare Theorem?

Econ 344 Public Finance Spring 2005 Midterm Exam 1 Name The duration of the exam is 1 hour 20 minutes. The exam consists of 7 problems and it is worth 100 points. The extra credit problem will only be