Price Per Ounce $11.00 $10.00 $9.00 $8.00 57.00 $6.00 $5.00 $4.00 $3.00 $2.00 $1

Question

Price Per Ounce $11.00 $10.00 $9.00 $8.00 57.00 $6.00 $5.00 $4.00 $3.00 $2.00 $1.00 $o.00 Marginal Private Benefits Marginal Social Costs Marginal Private Costs Quantity Per Week (ounces) Question 7: Given the information in the graph, what size tax would be needed to arrive at the socially optimum level of alcohol consumption? C 1) $1.00/ounce C 2) $2.00/ounce C 3) $4.00/ounce 4) S5.00/ounce c 5) S6.00/ounce Question 12: Given the information in the graph, if no intervention occurs, then the equilibrium price of alcohol will be alcohol will be per ounce and the equilibrium quantity of ounces. C 1) SO; 0 C 2) $2.00; 2,000 C 3) S6.00; 1,000 C 4) S10.00; 0 Question 11: Societies should strive for an optimal amount of pollution. This would occur when C 1 pollution is not produced in any amount. C 2) the marginal costs of reducing pollution are just equal to the marginal benefits of pollution reductions C 3) the total benefits of reduced amounts of pollution is equal to the total costs of reduced amounts of pollution. C 4 societies stop worrying about the issue and let markets determine the amount of pollution that is to be produced.

Explanation / Answer

(Question 7) Option (4)

In social optimal, Marginal private benefit (MPB) intersects Marginal social cost (MSC). At this intersection point,

MSC - Marginal private cost (MPC) = $6 - $1 = $5

This is the amount of unit tax.

(Question 12) Option (2)

In equilibrium without intervention, MPB intersects MPC, corresponding to which

Price = $2

Quantity = 2,000

(Question 11) Option (2)

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