P1P3M (ii) The producer surplus (b) Assume that the production of each unit of candy creates a negative externality equal to (p5-p2). Q1 Using the labeling on the graph, identify the socially optimal quantity. (c) Assume that the government imposes a per-unit tax of (p5-p2) to correct for the negative externality. Using the labeling on the graph, identify the area representing each of the following. JP5K (i) The consumer surplus There will be no deadweight loss. (ii) The deadweight loss Mr. Maurer Name: ____________________________ AP Economics 2011 Free Response Question (Short) Externalities – Assume that the market for good X is perfectly competitive and that the production of good X creates a negative externality. (a) Draw a correctly labeled graph of the market for good X and show each of the following. (i) The marginal private cost and marginal social cost of good X, labeled MPC and MSC, respectively (ii) The market quantity, labeled Qm (iii) The allocatively efficient quantity, labeled Qs (iv) The area of deadweight loss, shaded completely (b) Assume that a lump-sum tax is imposed on the producers of good X. What happens to the deadweight loss? Explain. (a) 4 points: is earned for showing a correctly labeled MSC curve • One point above a correctly labeled MPC curve. is earned for drawing the correctly labeled graph with • One point an upward-sloping MPC curve and a downward-sloping MSB curve and showing the private market equilibrium, Qm.
(ii) The producer surplus P1P3M (b) Assume that the production of each unit of candy creates a negative externality equal to (p5-p2). Using the labeling on the graph, identify the socially optimal quantity. Q1 (c) Assume that the government imposes a per-unit tax of (p5-p2) to correct for the negative externality. Using the labeling on the graph, identify the area representing each of the following. (i) The consumer surplus JP5K (ii) The deadweight loss There will be no deadweight loss. Mr. Maurer Name: ____________________________ AP Economics 2011 Free Response Question (Short) – Externalities Assume that the market for good X is perfectly competitive and that the production of good X creates a negative externality. (a) Draw a correctly labeled graph of the market for good X and show each of the following. (i) The marginal private cost and marginal social cost of good X, labeled MPC and MSC, respectively (ii) The market quantity, labeled Qm (iii) The allocatively efficient quantity, labeled Qs (iv) The area of deadweight loss, shaded completely (b) Assume that a lump-sum tax is imposed on the producers of good X. What happens to the deadweight loss? Explain. (a) 4 points: • One point is earned for showing a correctly labeled MSC curve above a correctly labeled MPC curve. • One point is earned for drawing the correctly labeled graph with an upward-sloping MPC curve and a downward-sloping MSB curve and showing the private market equilibrium, Qm.
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