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1) What is an externality? a

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1) What is an externality?

a. Are negative externalities reflected in market supply curves?

b. Why or why not?

2) Because taxes impose a cost on society, they create no benefit for society. Explain.

a. True

b. False

3. What is the difference between private costs and social costs?

4. When a large number of refrigerators are produced in a society, there are a number of negative spillovers (externalities): higher material waste from old products, increased damage to the ozone layer, happier residents.

a. Depict this on a supply and demand framework, showing the initial equilibrium price and quantity, and any inefficiency (dead-weight loss) due to social factors.

b. Come up with an innovative government policy which can discourage use of traditional freon refrigerators?

c. What happens to the dead-weight loss and how can it get to a socially efficient quantity?

d. What condition is necessary to eliminate the entirety of the social inefficiency?