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Question 1

Suppose that there is a negative externality in the market for pizza rolls. The graph below shows the supply and demand curves for pizza rolls.

Graphs with window x: 0 to 14, y: 0 to 14. Start Graph, Color red

xy
04
15
26
37
48
59
610
711
812
913
1014
1115
1216
1317
1418
Start Graph, Color blue
xy
08
17
26
35
44
53
62
71
80
9-1
10-2
11-3
12-4
13-5
14-6
Start Graph, Color green
xy
05
16
27
38
49
510
611
712
813
914
1015
1116
1217
1318
1419
Label "Quantity of pizza rolls" at pixel coordinates (175,0).Label "Price of pizza rolls" at pixel coordinates (0,170).Label "D (MPB)" at (1,8-1). Label "S (MPC)" at (1,4+1). Label "S (MSB)" at (5,5+1*5).

What is the market equilibrium quantity?

Hint


Question 2

What is the market price?

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Question 3

What is the optimal (efficient) quantity?

Hint


Question 4

What should the government do in order to ensure the market produces the optimal (efficient) quantity?

Hint


Question 5

How big should the government's corrective taxes or subsidies be in this case?

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Question 6

As a result of this negative externality, the market

Hint