A local drama company proposes a new neighborhood theatre in Langley. Before approving the building permit, the city planner completes a study of the theatre's impact on the surrounding community.

1. One finding of the study is that theatres attract traffic, which negatively affects the community. The city planner estimates that the cost to the community from the extra traffic is $5 per ticket. What kind of an externality is this? And why?

2. Graph the market fir theatre tickets, labelling the demand curve, the social-value curve, the supply curve, the social-cost curve, the market equilibrium level of output, the efficient level of output. Also show the per-unit amount of the externality.

3. On further review, the city planner discovers a second externality. Rehearsals for the plays tend to run until late night, with actors, stagehands, and other theatre members coming and going at various hours. The planner has found that the increased foot traffic improves the safety of the surrounding streets, and estimated benefit to the community of $2 per ticket. What kind of externality is this? And why?

4. On a new graph,illustratethe market for theatre tickets in the case of these two externalities together. Again, label the demand curve, the social-value curve, the supply curve, the social-cost curve, the market equilibrium level of output, the efficient level of output. Also show the per-unit amount of both externalities.