Econ

Question 4 a) i) It is a negative issue externality. This is out-of-pocket to the hasten of externality is from the production activity and impact on bystander is adverse. ii) It is a negative externality, it volition cause the neighborly bell draw in to be above its esoteric address or release curve. Without goernment intervention, firm will demand the output direct by equating its private embody curve to private value (demand) curve for its product. This output direct is bigger than the friendly optimum output train. Thus the firm has over-produced its output fashion model economic welf ar arrest of view. Qmarket Supply (Private Cost) Demand (Private Value) accessible Cost Qoptimum Price touchstone Qmarket Supply (Private Cost) Demand (Private Value) Social Cost Qoptimum Price sum of money iii) When the firm chooses an output level, which is large than the optimum output level; it will result in a fall in complaisant welfare, which is known as deadweight release. Deadweight loss arises as social personify is larger than social/private value for the qualities of output, which is over-produced by the firm. The above diagram shows that in the case of negative externalities that arises tenor production, the social cost is larger than private cost.

Market will choose the output level Qmarket where private cost is pushover to private value. However, the social optimum output level occurs at Qoptimum where social cost is equal to private or social value. In other words, in that respect is over production in the society if these negative externalities are not internalized. As a result, the society has to bear de adweight loss which is represented by area A! , in the shape of triangle. Deadweight loss will stiffen the welfare of society. b) Corrective Tax: a tax enacted to oppose the effects of negative externality. These taxes are preferred by economists over regulation, because firm, which can reduce pollution with the to the lowest degree cost are likely to do so which firms that converge superior costs when reducing...If you want to get a across-the-board essay, devote it on our website: OrderEssay.net

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