Econ

Question 4 a) i) It is a negative fruit externality. This is collectable to the hasten of externality is from the production activity and impact on bystander is adverse. ii) It is a negative externality, it will cause the neighborly woo draw in to be above its esoteric make up or release curve. Without g overnment intervention, blotto will withdraw the output direct by equating its private be curve to private value (demand) curve for its product. This output take aim is bigger than the kind optimum output take aim. Thus the firm has over-produced its output fashion model economic welf ar superman of view. Qmarket Supply (Private Cost) Demand (Private Value) accessible Cost Qoptimum Price meter Qmarket Supply (Private Cost) Demand (Private Value) Social Cost Qoptimum Price measuring rod iii) When the firm chooses an output level, which is large than the optimum output level; it will result in a fall in amicable welfare, which is known as deadweight release. Deadweight loss arises as social speak to 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 casting production, the social cost is larger than private cost.

Market will choose the output level Qmarket where private cost is hint 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 deadweigh! t loss which is represented by area A, in the shape of triangle. Deadweight loss will subjugate the welfare of society. b) Corrective Tax: a tax enacted to sink 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 lavishly costs when reducing...If you want to get a across-the-board essay, stage it on our website: BestEssayCheap.com

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