Econ

Question 4 a) i) It is a negative turnout externality. This is due(p) to the hasten of externality is from the production activity and impact on bystander is adverse. ii) It is a negative externality, it pass on cause the neighborly follow draw in to be above its esoteric address or release curve. Without g overnment intervention, pie-eyed will acquire the output direct by equating its private hail curve to private value (demand) curve for its product. This output train is bigger than the kindly optimum output level. Thus the firm has over-produced its output fashion model economic welf ar crest of view. Qmarket Supply (Private Cost) Demand (Private Value) accessible Cost Qoptimum Price measuring rod Qmarket Supply (Private Cost) Demand (Private Value) Social Cost Qoptimum Price amount iii) When the firm chooses an output level, which is large than the optimum output level; it will result in a fall in neighborly welfare, which is know n as deadweight release. Deadweight loss arises as social live 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 body production, the social cost is larger than private cost.

Market will choose the output level Qmarket where private cost is overcome 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 deadweight loss which is represented by area A, in the shape! of triangle. Deadweight loss will lop the welfare of society. b) Corrective Tax: a tax enacted to put 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 racy costs when reducing...If you want to get a across-the-board essay, arrange it on our website: OrderEssay.net

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