The above figure shows the market for fertilizer. When fertilizer is applied to lawns, it runs off into neighboring streams and ponds, killing fish and creating an external cost
a) What is the equilibrium price and quantity of fertilizer in an unregulated, competitive market?
b) What is the efficient quantity of fertilizer?
c) Suppose government imposes a tax equal to the marginal external cost. What is the equilibrium price paid by consumers and the equilibrium quantity after implementation of the tax?
d) At the output level in part (c), how much is the tax?
e) How much tax revenue does government collect?
f) What is the deadweight loss borne by society if the externality is left uncorrected?
a) The equilibrium price is $1,000 a ton and the equilibrium quantity is 6 tons per day.
b) The efficient quantity is 4 tons per day.
c) The price paid by consumers after the tax is $1,200 a ton and the equilibrium quantity is the efficient quantity, 4 tons per day.
d) The tax is $400 a ton.
e) The government collects $1,600 a day in taxes.
f) The deadweight loss with no government action is $600 a day.
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The demand for DVDs increases. As a result
A) the wage rate in the DVD industry increases and the quantity demanded of workers increases. B) the wage rate in the DVD industry increases and the quantity supplied of workers increases. C) the demand for labor increases and the supply of labor also increases, leaving wages unchanged. D) the demand for labor increases, but since the supply curve of labor is perfectly elastic, the wage rate does not change.
Oligopolistic firms never collude because they have almost no incentive to do so.
Answer the following statement true (T) or false (F)
In a situation where a market failure occurs,
A. any government intervention will improve on the market outcome. B. there is nothing that the government can do to improve on the market outcome. C. government intervention might improve on the market outcome. D. it will always be preferable to have the government intervene in the market.
Positive expected profits:
A. increase product demand. B. discourage people from supplying goods. C. encourage people to supply goods. D. have no effect on supply decisions.