Question 13 A tire manufacturing plant is petitioning the city of Bozeman to beg

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Question 13 A tire manufacturing plant is petitioning the city of Bozeman to begin production in the area. The plant will bring jobs to the area, but it will also generate pollution and unsightly buildings next to the nearby ski areas and hiking trails. All else equal, if the city allows unrestricted tire manufacturing 1) the tire manufacturer is likely to produce the optimal amount of tires from a social efficiency perspective C 2) the tire manufacturer is likely to price its tires too high from a social efficiency perspective C C C 3) the tire manufacturer is likely to produce too many tires from a social efficiency perspective 4) answers B and C are both correct Question 14 At the current level of production, the marginal social cost of producing Recyclops Man action figures is $12, the marginal private cost of producing Recyclops Man action figures is S8, and the marginal social benefit of Recyclops Man action figures is $12. Based on this information, the marginal external cost of Recyclops Man action figures is C 1 s0 C 2) $A C 3) $8 C 4) $12 Question 1:5 Which of the following is the best example of a negative externality? C 1) a person who smokes faces an increased probability of getting lung cancer C 2) a person who builds their home in a flood plain faces a loss if heavy rains cause a flood C 3) someone who lives with a person who smokes faces an increased probability of getting lung cancer C 4) all of the above are negative externalities

Explanation / Answer

13) C. When there is negative externality then social marginal cost>pvt marginal cost and thus more output is produced compared to efficient outcome.

14)B. Marginal external cost=marginal social cost-marginal pvt. Cost=12-8=4

15)C. Negative externality means action of one affects the second, which he is not willing.

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