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Analysis of a Negative Externality

Analysis of a Negative Externality. The market for gasoline. P. $. 5. 4. 3. 2. 1. 0. Q (gallons). 0. 10. 20. 30. Social cost. S. D. 25. P. 50. $. 40. 30. 20. 10. Q. 0. 0. 10. 20. 30. A C T I V E L E A R N I N G 1 Analysis of a positive externality.

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Analysis of a Negative Externality

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  1. Analysis of a Negative Externality The market for gasoline P $ 5 4 3 2 1 0 Q(gallons) 0 10 20 30 Social cost S D 25 EXTERNALITIES

  2. P 50 $ 40 30 20 10 Q 0 0 10 20 30 A C T I V E L E A R N I N G 1Analysis of a positive externality The market for flu shots External benefit = $10/shot • Draw the social value curve. • Find the socially optimal Q. • What policy would internalize this externality? S D 1

  3. A C T I V E L E A R N I N G 2Applying Coase Collectively, the 1000 residents of Green Valley value swimming in Blue Lake at $100,000. A nearby factory pollutes the lake water, and would have to pay $50,000 for non-polluting equipment. A. Describe a Coase-like private solution. B. Can you think of any reasons why this solution might not work in the real world? 2

  4. A C T I V E L E A R N I N G 2Explaining wage differentials In each case, identify which worker would earn more and explain why. A.The best physical therapist on the planet or the best writer on the planet B.A trucker that hauls produce or a trucker that hauls hazardous waste from nuclear power plants C.A graduate of an Ivy League college or an equally intelligent & capable graduate of a state university D.Someone who graduated from a state university with a 3.7 GPA, or someone who graduated from the same university with a 2.4 GPA 3

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