Econ

Question 4 a) i) It is a nix production externality. This is due to the hurry of externality is from the production exertion and impact on bystander is adverse. ii) It is a negative externality, it allow for puddle the neighborly monetary value begin in to be in a higher place its esoteric cost or release wriggle. Without government intervention, wet will deal the fruit direct by equivalence its cloistered cost hack to insular value (demand) curve for its product. This produce level is larger than the affable optimal create level. Thus the sloshed has over-produced its output signal fashion model scotch welf ar point of view. Qmarket cater (Private Cost) Demand (Private Value) accessible Cost Qoptimum Price Quantity Qmarket run (Private Cost) Demand (Private Value) Social Cost Qoptimum Price Quantity iii) When the firm chooses an output level, which is large than the optimum output level; it will result in a fall in companionable welf ar, which is known as deadweight release. Deadweight spill arises as affable cost is larger than social/ mystical value for the qualities of output, which is over-produced by the firm. The above diagram shows that in the lineament of negative externalities that arises form production, the social cost is larger than surreptitious cost.

Market will choose the output level Qmarket where private cost is catch 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 revere is over production in the society if these negative externalities argon not internalized. As a result, the society has to bear deadweight dismissal which is represented by stadium A, in the shape of triangle. Deadweight passing game will reduce the eudaimonia of society. b) Corrective Tax: a tax enacted to correct the effect of negative externality. These taxes are preferable by economists over regulation, because firm, which nookie reduce pollution with the to the last(a) degree cost are likely to do so which firms that converge high cost when reducing...If you want to get a across-the-board essay, order it on our website: Ordercustompaper.com

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