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Show the market for cigarettes in equilibrium, assuming that there are no laws banning
Chapter 12, Problem 40(choose chapter or problem)
Show the market for cigarettes in equilibrium, assuming that there are no laws banning smoking in public. Label the equilibrium private market price and quantity as Pm and Qm. Add whatever is needed to the model to show the impact of the negative externality from second-hand smoking. (Hint: In this case it is the consumers, not the sellers, who are creating the negative externality.) Label the social optimal output and price as Pe and Qe. On the graph, shade in the deadweight loss at the market output.
Questions & Answers
QUESTION:
Show the market for cigarettes in equilibrium, assuming that there are no laws banning smoking in public. Label the equilibrium private market price and quantity as Pm and Qm. Add whatever is needed to the model to show the impact of the negative externality from second-hand smoking. (Hint: In this case it is the consumers, not the sellers, who are creating the negative externality.) Label the social optimal output and price as Pe and Qe. On the graph, shade in the deadweight loss at the market output.
ANSWER:Step 1 of 2
The negative externality explains the difference between the cost of an action done by the private individual and the social cost. A negative externality shows the loss or a disadvantage to an individual's consumption of a good. For instance, a negative externality may occur due to the extra usage of pesticides in farms. The overuse of pesticides will harm both oceans and rivers and the product produced on the farm.