Mr. Maurer
AP Economics
Name: ________________________________
Externalities – Problem Set #1
1. What type of externality is represented by
the graph at left? Explain.
2. Will the market underproduce or
overproduce the good depicted at left?
3. On the graph, label the marginal external benefit (MEB) and shade in the area of
deadweight loss.
4. What type of externality is represented
by the graph at left? Explain.
5. Will the market underproduce or
overproduce the good depicted at left?
6 On the graph, label the marginal
external cost (MEC) and shade in the area of deadweight loss.
7. The graph at left shows a perfectly competitive
market in equilibrium. Assume now that a
negative externality exists in the market. Add the
necessary elements and labeling to the graph to
demonstrate the externality. Label the area of
deadweight loss.
8.
The graph at left shows a perfectly competitive
market in equilibrium. Assume now that a
positive externality exists in the market. Add the
necessary elements and labeling to the graph to
demonstrate the externality. Label the area of
deadweight loss.
9. What type of externality is represented by
the graph at left? What does the arrow
labeled (A) represent?
10. What type of externality is represented by the graph at
left? What does the arrow labeled (A) represent?
11. What type of externality is represented by the
diagram at left?
12. Identify the following:
a. S1
b. S2
c. Line segment AB
d. Q1
e. Q2
f. The area of deadweight loss.
12. What type of externality is represented at left?
13. Identify the following:
a. D1
b. D2
c. Line segment CE
d. Q1
e. Q2
f. The area of deadweight loss.
14. In the space below, draw a correctly labeled graph of a market that includes a positive externality.
On your graph, be sure to label:
marginal private benefit (MPB)
marginal social benefit (MSB = MPB + MEB)
the marginal external benefit (MEB)
the marginal social cost (MSC)
the quantity the market will produce (QMKT) the socially efficient quantity (QEFF)
the area of deadweight loss
15. What action could the government take, and in what amount, to correct for the externality in
represented in your graph (refer back to your textbook for this)
16. In the space below, draw a correctly labeled graph of a market that includes a negative
externality. On your graph, be sure to label:
marginal private cost (MPC)
marginal social cost (MSC = MPC + MEC)
the marginal external cost (MEC)
the marginal social benefit (MSB)
the quantity the market will produce (QMKT) the socially efficient quantity (QEFF)
the area of deadweight loss
17. What action could the government take, and in what amount, to correct for the externality in
represented in your graph (refer back to your textbook for this)