1) Explain what is meant by negative externalities.

2) Describe how an over allocation of resources results when negative externalities costs are present.

3) How this can be corrected by government action.

Solve the following using the graph:NegativeExternalities.pdf

Actions

4) Calculate the cost borne to society at equilibrium at Point A?

5) From question 5, what is the cost borne to society after Government increases taxes by $0.50?

6) Start at equilibrium at Point A. What is the cost borne to society after Government increases taxes by $1.00?

7) From question 6, how much in terms of quantity must consumers demand less to eliminate the cost borne to society?