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Microeconomics Week 4 Final Exam Microeconomics Week 4 Final Exam

Multiple choice

Table 10-1[table] Quantity(Units) | Private Value(Dollars) | Private Cost(Dollars) | External Cost(Dollars) 1 | 28 | 12 | 4 2 | 26 | 14 | 4 3 | 24 | 16 | 4 4 | 22 | 18 | 4 5 | 20 | 20 | 4 6 | 18 | 22 | 4 7 | 16 | 24 | 4 [/table]​Refer to Table 10-1. Which of the following statements is correct?

Options
A.If the external cost per unit of output were $0 instead of $4, then the socially efficient quantity of output would be 6 units.
B.A tax of $8 per unit would enable this market to move from the equilibrium quantity of output to the socially optimal level of output.
C.Taking the external cost into account, total surplus declines when the 5th unit of output is produced and consumed.
D.The market for flowers is a market to which the concepts in this table apply very well.
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We start by laying out what Table 10-1 shows and what the question is asking about. Option 1: If the external cost per unit were $0 instead of $4, then the socially efficient quantity of output would be 6 units. With EC = 0, the social cost per unit equals the private cost. The private values (willingness to pay) and private costs are: - Q1: PV 28, PC 12 → net gain 16 - Q2: PV 26, PC 14 → net gain 12 - Q3: PV 24, PC 16 → net gain 8 - Q4: PV 22, PC 18 → net gain 4 - Q5: PV 20, PC 20 → net gain 0 - Q6: PV 18, PC 22 → net gain -4 - Q7: PV 16, PC 24 → net gain -8 A socially efficient quantity typically includes units with a positive net social benefit; some analyses also coun......Login to view full explanation

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