3. Efficiency in the presence of externalities Roses confer many external benefits on society: the beauty they add to a room or garden, the wonderful aroma they give off, and so on. Therefore, the market equilibrium quantity of roses is not equal to the socially optimal quantity. The following graph shows the demand for roses (their private value), the supply of roses (the private cost of producing them), and the social value of roses (the private value and external benefits). Use the black point (plus symbol) to indicate the market equilibrium quantity. Next, use the purple point (diamond symbol) to indicate the socially optimal quantity. PRICE OF ROSES X Supply QUANTITY OF ROSES (Private Cost) Social Value Demand (Private Value) + Market Equilibrium Socially Optimal Level (?)
3. Efficiency in the presence of externalities Roses confer many external benefits on society: the beauty they add to a room or garden, the wonderful aroma they give off, and so on. Therefore, the market equilibrium quantity of roses is not equal to the socially optimal quantity. The following graph shows the demand for roses (their private value), the supply of roses (the private cost of producing them), and the social value of roses (the private value and external benefits). Use the black point (plus symbol) to indicate the market equilibrium quantity. Next, use the purple point (diamond symbol) to indicate the socially optimal quantity. PRICE OF ROSES X Supply QUANTITY OF ROSES (Private Cost) Social Value Demand (Private Value) + Market Equilibrium Socially Optimal Level (?)
Economics (MindTap Course List)
13th Edition
ISBN:9781337617383
Author:Roger A. Arnold
Publisher:Roger A. Arnold
Chapter30: Market Failure: Externalities, Public Goods, And Asymmetric Information
Section: Chapter Questions
Problem 10QP
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3. Efficiency in the presence of externalities
Roses confer many external benefits on society: the beauty they add to a room or garden, the wonderful aroma they give off, and so on. Therefore, the
Use the black point (plus symbol) to indicate the market equilibrium quantity. Next, use the purple point (diamond symbol) to indicate the socially optimal quantity.
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