Question at position 1 Think about a neighborhood where people can plant flowers in their front yard. The flowers garden brings private benefits to the house owner, but also brings spillover benefits to people who enjoy seeing butterflies and other pollinators. The demand for flowers (to plant in their yard) is given by: QD= 500-20P. The supply of flowers is given by: QS= 20P-100. The demand and supply curves are shown above. The market-clearing price is $15 and the market quantity (QMKT) is 200 units. The inverse demand function is given by: P=25-0.05QD. The inverse supply is given by: P=5+0.05QS. There is a constant, marginal spillover benefit (MSpB) of $10 per flower to the people who enjoy seeing pollinators. The Marginal Social Benefit of flowers is: MSB = X - 0.05Q. Calculate the value of X. Hint: For a positive consumption externality MSB = MPB + MSpB. The MPB is given by the inverse demand function.Answer Think about a neighborhood where people can plant flowers in their front yard. The flowers garden brings private benefits to the house owner, but also brings spillover benefits to people who enjoy seeing butterflies and other pollinators. The demand for flowers (to plant in their yard) is given by: QD= 500-20P. The supply of flowers is given by: QS= 20P-100. The demand and supply curves are shown above. The market-clearing price is $15 and the market quantity (QMKT) is 200 units. The inverse demand function is given by: P=25-0.05QD. The inverse supply is given by: P=5+0.05QS. There is a constant, marginal spillover benefit (MSpB) of $10 per flower to the people who enjoy seeing pollinators. The Marginal Social Benefit of flowers is: MSB = X - 0.05Q. Calculate the value of X. Hint: For a positive consumption externality MSB = MPB + MSpB. The MPB is given by the inverse demand function.[input]

Question

Question at position 1  Think about a neighborhood where people can plant flowers in their front yard. The flowers garden brings private benefits to the house owner, but also brings spillover benefits to people who enjoy seeing butterflies and other pollinators. The demand for flowers (to plant in their yard) is given by: QD= 500-20P. The supply of flowers is given by: QS= 20P-100. The demand and supply curves are shown above. The market-clearing price is $15 and the market quantity (QMKT) is 200 units. The inverse demand function is given by: P=25-0.05QD. The inverse supply is given by: P=5+0.05QS. There is a constant, marginal spillover benefit (MSpB) of $10 per flower to the people who enjoy seeing pollinators. The Marginal Social Benefit of flowers is: MSB = X - 0.05Q. Calculate the value of X. Hint: For a positive consumption externality MSB = MPB + MSpB. The MPB is given by the inverse demand function.Answer Think about a neighborhood where people can plant flowers in their front yard. The flowers garden brings private benefits to the house owner, but also brings spillover benefits to people who enjoy seeing butterflies and other pollinators. The demand for flowers (to plant in their yard) is given by: QD= 500-20P. The supply of flowers is given by: QS= 20P-100. The demand and supply curves are shown above. The market-clearing price is $15 and the market quantity (QMKT) is 200 units. The inverse demand function is given by: P=25-0.05QD. The inverse supply is given by: P=5+0.05QS. There is a constant, marginal spillover benefit (MSpB) of $10 per flower to the people who enjoy seeing pollinators. The Marginal Social Benefit of flowers is: MSB = X - 0.05Q. Calculate the value of X. Hint: For a positive consumption externality MSB = MPB + MSpB. The MPB is given by the inverse demand function.[input]

BlackTom AI · Accepted Answer

Let’s unpack the problem step by step and keep the units and definitions straight.
First, identify what MPB means here: it is the marginal private benefit, which is given by the inverse demand function. The inverse demand is P = 25 − 0.05QD, so MPB at a quantity Q is MPB(Q) = 25 − 0.05Q.
Next, note there is a constant, marginal spillover (external) benefit to others: MSpB = 10 per flower.
The problem defines the marginal social benefit (MSB) for a positive consumption externality as MSB = MPB + MSpB. This is the standard way to incorporate external benefits into social welfare.
We are given the market quantity QMKT = 200 units for the calculation.
Now compute MPB at Q = QMKT: MPB(200) = 25 − 0.05 × 200 = 25 − 10 = 15.
Add the external benefit to obtain MSB at Q = 200: MSB = MPB + MSpB = 15 + 10 = 25.
The MSB is also expressed as MSB = X − 0.05Q. To find X, plug in Q = 200 and MSB = 25: 25 = X − 0.05 × 200.
Calculate 0.05 × 200 = 10, so 25 = X − 10.
Solve for X: X = 25 + 10 = 35.
So the value of X corresponds to the intercept in the MSB expression that makes MSB(200) equal to 25, given the external benefit and the private marginal benefit defined by the inverse demand.

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