Pls answer all parts for Upvote a) What is the argument for government intervent
ID: 1164542 • Letter: P
Question
Pls answer all parts for Upvote
a) What is the argument for government intervention in education? Use the theory of public goods and the positive externality graph to explain your answer. What would be an effective governmental intervention to get to the optimal level of education? b) What is the argument for government intervention in pollution abatement? Use the negative externality graph to explain your answer. What would be an effective governmental intervention optimal level of pollution? Externality graph Supply Socia Supply Incemal e . Demand 80 95 Quantity of packs of cigarettes (millions) a. What is the equilibrium price and quantity if this is an unregulated market? b. What would the social loss be of the overallocation of cigarettes? You answer should be in dollars. c. What is the external cost? (Assume the external cost is the same along the the supply curve) d. What would be an appropriate solution for the government to mitigate this market failure? Be specificExplanation / Answer
a) there should be government intervention in case of education because social benefits of education is greater than private benefits and because education is a public good and its true demand is not reflected by the ptivate demand .This makes the demand for education higher than private demand. But this fact is ignored in free market. As a result level of education produced in the country is lower than the level which maximises social welfare.
In the graph, demand is the private demand and demand social is addition of private demand and social externality. Free market equilibrium is reached at e whereas social equilibrium is reached at es. From the graph it can be concluded that Q1 is lower than Q*2.
Governent can resolve the problem by providing subsidy to private providers of education. This will increase the supply to the level where Q*2 results.
b) Pollution has a negative effect called negative externality on society which makes the social supply or cost of producing pollutants higher than private supply or cost. Private equilibrium is reached at e where Q1 pollutants are produced, and social equilibrium is reached at es with Q*2 pollutants. We can see that free market equilibrium results in overproduction of pollutants.
Governement can solve the problem by taxing the creators of pollutants. In this way private cost of producing pollutants is increased to social cost which results in social optimal quantity of pollutants.
c) a. Unregulated equilibrium is reached at intersection of demand internal and supply internal. Equilibrium price is 7 and quantity is 95.
b. Social loss is the deadweight loss which is equal to
0.5(9-5)(95-80)= 10
c. External cost = 9-5= 4 per unit.
d. Piguovian tax of 4 on suppliers will solve the market failure.