1) Does the above diagram depict a positive externality or a negative externality? 2) What is the market quantity and price? 3) What is the socially optimal quantity? 4) What is the socially optimal price? 5) At the socially optimal price and quantity, what is the consumer surplus? 6) At the socially optimal price and quantity, what is the producer surplus? Remember, producers care about their private costs. Next, suppose that the government steps in to mandate the socially optimal quantity, but does not allow the price to rise. 7) What is the consumer surplus? 8) What is the producer surplus?

1) Does the above diagram depict a positive externality or a negative externality? 2) What is the market quantity and price? 3) What is the socially optimal quantity? 4) What is the socially optimal price? 5) At the socially optimal price and quantity, what is the consumer surplus? 6) At the socially optimal price and quantity, what is the producer surplus? Remember, producers care about their private costs. Next, suppose that the government steps in to mandate the socially optimal quantity, but does not allow the price to rise. 7) What is the consumer surplus? 8) What is the producer surplus?

Principles of Microeconomics

7th Edition

ISBN:9781305156050

Author:N. Gregory Mankiw

Publisher:N. Gregory Mankiw

Chapter10: Externalities

Section: Chapter Questions

Problem 3PA

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