The following table shows the Marginal Costs and Marginal Private Benefits associated with different levels of production for pistol ammunition in the US. Quantity (1000's of boxes) Marginal Private Cost 1000 $14 2000 16 3000 18 4000 20 5000 22 6000 24 Marginal Private Benefit 26 24 22 20 18 16 a.) Given the information above, sketch the market equilibrium.. b.) Suppose that there is an externality associated with the consumption of pistol ammunition such that there is an External Benefit equal to negative 8 dollars per box. On the diagram above, show the resulting Marginal Social Benefit curve and the Socially Optimal Level of output. c.) Suppose that there is a tax imposed on the consumption of ammunition that exactly counter-acts this negative externality. Label the after-tax output and prices levels on the diagram, and calculate the Consumer and Producer burden from this tax. d.) Explain why, unlike in many cases, there will not be a dead-weight loss due to this tax.

The following table shows the Marginal Costs and Marginal Private Benefits associated with different levels of production for pistol ammunition in the US. Quantity (1000's of boxes) Marginal Private Cost 1000 $14 2000 16 3000 18 4000 20 5000 22 6000 24 Marginal Private Benefit 26 24 22 20 18 16 a.) Given the information above, sketch the market equilibrium.. b.) Suppose that there is an externality associated with the consumption of pistol ammunition such that there is an External Benefit equal to negative 8 dollars per box. On the diagram above, show the resulting Marginal Social Benefit curve and the Socially Optimal Level of output. c.) Suppose that there is a tax imposed on the consumption of ammunition that exactly counter-acts this negative externality. Label the after-tax output and prices levels on the diagram, and calculate the Consumer and Producer burden from this tax. d.) Explain why, unlike in many cases, there will not be a dead-weight loss due to this tax.

ECON MICRO

5th Edition

ISBN:9781337000536

Author:William A. McEachern

Publisher:William A. McEachern

Chapter17: Externalities And The Environment

Section: Chapter Questions

Problem 2.3P: (Negative Externalities) Suppose you wish to reduce a negative externality by imposing a tax on the...

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