PriceMCS$5 per unitMC PBcIDHQuantityQENegative ExternalityThe following questions refer to the accompanying diagram, which shows the effectsof a negative externality created by an industry's production.Refer to the graph. According to a Pigovian analysis of this externality, when a tax of$5 per unit is imposed on the firms in this industry, the external costs created by thefirms' production will equalarea C + D + E + G + H.) area C + D + G + H.area C+ G.zero.

Answered: Image /qna-images/answer/58bf12f7-0058-47c3-a8a5-d89861b0089f.jpg

Answered: O area C+ D+ G + H.

Business

Economics

O area C+ D+ G + H.

Principles of Economics 2e

2nd Edition

ISBN:9781947172364

Author:Steven A. Greenlaw; David Shapiro

Publisher:Steven A. Greenlaw; David Shapiro

Chapter12: Environmental Protection And Negative Externalities

Section: Chapter Questions

Problem 41P: Refer to Table 12.2. The externality created by the refrigerator production was 100. However, once...

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Market Failure Analysis

To understand Market failure, we need to first understand welfare economics. An Italian economist, Vilfredo Pareto stated that allocation of resources in an efficient manner such that an economic change, which harms no one and makes someone better off, indicates an increase in social welfare. It is also called Pareto Optimality, where resources cannot further be reallocated without harming one. This does not apply to those economic changes, which harm some and benefit others. social welfare increases if the utility of any of its members' increases and none decrease in the economy.

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