Question
3: CONSUMPTION EXTERNALITY: Suppose consumption, instead, creates a positive externality. a) Illustrate the Market Failure that arises in Autarchy. Explain the basis for the failure.
3: CONSUMPTION EXTERNALITY: Suppose consumption, instead, creates a positive externality.
a) Illustrate the Market Failure that arises in Autarchy. Explain the basis for the failure.
b) Suppose we now open to free trade (with the free trade price above autarchy). Show the new market equilibrium and show the market failure
c) DoesHome still gain from free trade. Show and explain fully. Give the intuition.
d) Suppose the free trade price is below the autarchy price. Show the new market equilibrium and show the market failure DoesHome gain from free trade? Show and explain fully. Give the intuition.
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started
Managerial Economics And Strategy
Authors: Jeffrey M. Perloff, James A. Brander
3rd Edition
0134899709, 978-0134899701
