Jack Breezioski 2/ 20/ 24 Public Finance Quiz 2 Record all of your answers on the blank sheet attached and be sure to write your name at the top of your answer sheet. Positive prob extercally - Externalities Q1a. Consider a privately produced good X, that generates positive societal benefits not currently captured by the market price Pz. Will the socially desired quantity Qod be higher or lower than the market determined quantity, Qmkt? Use a diagram to illustrate. Q1b. Which area represents deadweight loss if only Qmkt is transacted? How do you identify this region on the graph? Q1c. Consider a second good Y, producing a negative production externality. If many firms produce Y, and differ in their marginal cost of production, will a quota on Y be more efficient than an excise tax that raises the price of Y? Explain. Qld. Assume that X and Y are substitutes. Describe the benefits of subsidizing X aside rom increasing the quantity of X transacted using 3-4 sentences. Be sure to (1) provide the appropriate range of values for the cross price elasticity of demand for Y with respect to X, and (2) provide the range of values for the elasticity of supply for good Y that would produce the largest quantity response (following the subsidy of X). Alternatively, you may use diagrams to illustrate.Question 2 A very large hog farm operates in a small North Carolina town. The firm produces ham, ba- con and other pork goods. All employees live in the town and the overwhelming majority of products are packaged and shipped for retailers across the US to sell. Hog feed is purchased from local farmers, and local regulations require animal waste to be processed on-site. Land, labor and animal feed are all elastic in supply in North Carolina. 2a. If there are ways to dispose of animal waste off-site that will be of lower cost to the firm, provide the Coasian argument for or against on-site waste disposal mandates. What assumption is likely to fail in practice? 2b. The largest rival producer is located in Alabama and lobbies against higher minimum wages in Alabama. As a result, workers strike and the rival is forced to close. Alabama is far enough away that workers will not migrate to North Carolina. Draw the short-run market for North Carolina pork products being sure to show how price and quantity respond to this unexpected demand shock. What is a specific attribute of livestock that would distinguish the short-run from long-run in this scenario? 2c. The small North Carolina town is represented by an election-minded, vote maximizing state senator. The senator has never accepted a bribe, and is not receiving campaign con- tributions from the pork lobby. She is wildly popular and has been re-elected several times, and always votes against subsidies to pork and animal feed industries. Use economics to describe the senator's vote patterns. Be sure to consider all assumptions in the paragraph prompt to start question 2. Write freely, and your answer response should at minimum 1. take into consideration the market for pork, input markets and externalities 2. describe the effect of an animal feed subsidy on the market for pork products 3. frame the senator's voting pattern through the lens of social costs and benefits, and assume the assumptions of the median voter theorem holds 2