Externality Problems- Answer questions 1-15. (Stevenson and Wolfers) Use the graph below to answer questions 5-8. 5. Painting the exterior of your house yields external benefits for your neighbors. Label the private marginal benefit and the social marginal benefit curves and show the amount of the external benefit. 6. What is the equilibrium price and quantity? 7. What is the socially optimal quantity in this market? 8. Does the market produce too much or too little of this good relative to the socially ooptimal outcome? How much? Externality Problems- Answer questions 1-15. (Stevenson and Wolfers) Some economists argue that early childcare generates an external benefit to society. Consider the following demand and supply graph for early childhood education. Answer questions 9-12 base on this graph. 9. How does the market equilibrium differ from what is best for society? 10. If the government was going to provide a per-unit subsidy in this market in order to achieve the socially optimal outcome, how large of a subsidy would the government need to provide? 11. How much in total would the government need to spend in this market each month to achieve the socially optimal outcome? 12. Do you think the government should spend money in this market? If so, where will the government get the money to spend on the program? Externality Problems- Answer questions 1-15. (Stevenson and Wolfers) Questions 1-4 refer to the graph above. 1. Based only on the graph above, are there positive or negative externalities associated with cigarettes? Explain your answer. 2. What is the equilibrium price and quantity in the market? 3. What is the socially optimal quantity? 4. According to the graph, what is the external cost of a pack of cigarettes? Externality Problems- Answer questions 1-15. (Stevenson and Wolfers) 13. 14. For centuries, Alaskans relied on salmon and other freshwater fish for protein, oil, and other nutrients. But when jetliners began flying tourists who love fishing from Seattle to Anchorage in the late 1950's, the stock of Alaskan salmon began falling. Following the advice of environmental scientists and economists, the Depart of Fish and Game introduced restrictions on the minimum size (28 inches) and the number of salmon caught (5 per day). Among their concerns was the high fraction of young salmon caught before they could reproduce. Are Alaskan salmon a private good, public good, or a common resource? How does the equilibrium quantity in the market compare to the socially optimal quantity of fish caught. lllustrate your answer with a correctly drawn graph with the equilibrium and socially optimal quantity of fish clearly identified. Shade the area of deadweight loss. 15. What are two government policy interventions which could be used to deal with this market failure