1. Define each of the following: Negative Externality: Positive Externality: 2. Read the scenarios below and identify with an "X" whether the underlined item produces a positive externality or a negative externality. Positive Negative On the 4th of july, you enjoy your neighbor's fireworks. The rendering plant produces a foul smell in the surrounding neighborhood. A concert venue in downtown causes significant traffic congestion. The cigarette smoker fills the walkway with second hand smoke. Your friends got a vaccine making it less likely you get sick from the virus. The musician fills the neighborhood with beautiful music while they practice. 3. For each of the externalities below, identify if the marginal social benefit is greater than, less than, or equal to marginal social cost at the market equilibrium? Positive Externality: Negative Externality: 4. Below is a competitive market graph for a good has an externality. Analyze the graph and answer the questions. MSC Is this a positive or negative externality? P MPC What is the socially optimal quantity? $14 What is the market quantity and price? $12 Identify the supply curve. $9 Calculate the deadweight loss. Would a per-unit tax or per-unit subsidy better MSB decrease deadweight loss? 13 20 Q What is the value of the per unit tax or subsidy needed to eliminate deadweight loss? 5. Below is a competitive market graph for a good with an externality. Analyze the graph and answer the questions using points and labels from the graph. MSC Is this a positive or negative externality? C What is the socially optimal quantity? P2 D What is the market quantity and price? P1. . ..... Identify the demand curve. MSB Identify the deadweight loss. MPB Would a per-unit tax or per-unit subsidy better Q1 Q2 Q decrease deadweight loss? What is the value of the per unit tax or subsidy needed to eliminate deadweight loss