Individual versus social costs and benefits. In addition to providing private be
ID: 1193810 • Letter: I
Question
Individual versus social costs and benefits.
In addition to providing private benefit to the individuals who purchase them, solor panels also benefit society as a whole by reducing global energy consumption. This additional benefit to society is known as a (deadweight loss, negative externality, surplus, or positive externality). Because individuals who purchase solar panels bear the full cost but do not receive the full benefit of solar panel installations, the market equillibrium quantity of solar panels in an unsubsidized market is (above or below) the socially optimal quantity.
The graph below represents the annual private value (private value) of solar panels to consumers and the private cost (private cost) of solar panels to producers. Assume that, in addition to the benefit to individual buyers, the rest of society gets an additional $20,000 benefit from each house installed with solar panels. The social value (social value) of each solar panel installation is, therefore, $20,000 more than the private value at each quantity.
Use the green line (triangle symbols) to graph the social value curve on the graph below.
After plotting the social value curve, you can see that the socially optimal quantity exceeds the market equilibrium quantity by ________ installations per year.
Now imagine the government introduces a 20% tax credit for solar panel installations. This mens that homeowners can deduct 20% of the cost of thier installation from the amound they pay in taxes. For example, at the original market price of $100,000, the consumer would only really be paying $80.000 after deducting the $20,000 savings in taxes. If the cost to consumers is only $80,000 per installation, they will demand ______ installations per year.
Place a black point (x symbol) on the graph to mark the spot on the graph corresponding to a sticker price of $100,000 and the quantity demanded under the government incentive plan (from your answer below). This point is one spot on the market demand curve after the government initiates the rebate. Now, place another black point on the spot representing the demand if the price is $200,000. (Hint: Plot the second point at a price of $200,000 and the quantity demanded when the real price consumers pay is 20% lower.)
Now, you can use the two ponts you just plotted to find the demand curve after it shifted in response to the incentive policy. Use the red lline (cross symbols to connect the two black points you already graphed in order to show the demand curve for solar panels under the government incentive plan.
(True or False) The market equilibrium quantity of installatins under the government incentive plan is closer to the socially efficient point than without the plan.
Explanation / Answer
Ans 1 - positive externality
Ans 2 - below
Graph not uploaded correctly.