Please answer these questions: 1. When a positive externality is internalized, w
ID: 1108988 • Letter: P
Question
Please answer these questions:
1. When a positive externality is internalized, what will happen to the market price and quantity?
The equilibrium price will increase and the equilibrium quantity will decrease.
The equilibrium price will decrease and the equilibrium quantity will decrease.
The equilibrium price will decrease and the equilibrium quantity will increase.
The equilibrium price will increase and the equilibrium quantity will increase.
2. Which of the following is an example of a market-based policy?
Requiring all cars to have catalytic converters.
Establishing a minimum drinking age of 21.
Setting a maximum pollution limit for each electric utility.
Levying a tax on mercury emissions.
a.The equilibrium price will increase and the equilibrium quantity will decrease.
b.The equilibrium price will decrease and the equilibrium quantity will decrease.
c.The equilibrium price will decrease and the equilibrium quantity will increase.
d.The equilibrium price will increase and the equilibrium quantity will increase.
Explanation / Answer
1. A.
Markets underproduce in case of positive externality. Including it will increase marginal benefit and demand curve will shift to right. This equilibrium price and quantity will increase.
2. A. Rest all are fiscal policies set by government. While catalytic converter is to improve quality of cars so that their demand increases.