Suppose the panel (a) of the figure applies to Pennsylvania's steel market. Suppose that steel manufacturer in this state adopts a new technique for producing steel that entails a smaller external cost. In the absence of any government action to correct the negative externality from steel production, would the overallocation of resources to steel production in Pennslyvania be larger or smaller following the adoption of the next steel-manufacturing technique?

Short Answer

Expert verified

The overallocation of resources to steel production would be larger in the adoption of the next steel-manufacturing technique.

Step by step solution

01

Step 1. Given Information

The graph for the steel market is,

02

Step 2. The overallocation of resources.

The overallocation of resources to steel production would be larger in the adoption of the next steel-manufacturing technique. The overallocation would increase as the new technique will attract a larger number of producers.

Unlock Step-by-Step Solutions & Ace Your Exams!

  • Full Textbook Solutions

    Get detailed explanations and key concepts

  • Unlimited Al creation

    Al flashcards, explanations, exams and more...

  • Ads-free access

    To over 500 millions flashcards

  • Money-back guarantee

    We refund you if you fail your exam.

Over 30 million students worldwide already upgrade their learning with Vaia!

One App. One Place for Learning.

All the tools & learning materials you need for study success - in one app.

Get started for free

Most popular questions from this chapter

Would a government find it easier or harder to raise funds for a public good that all people value similarly but that current government officials possess varying capabilities to provide?

After a government implements a voucher program, granting funds that families can spend at schools of their choice, numerous students in public schools switch to private schools. Parents’ and students’ valuations of the services provided at both private and public schools adjust to equality with

the true market price of educational services. Is anyone likely to lose out nonetheless? If so, who?

Scans of internal organs using magnetic resonance imaging (MRI) devices are often covered by subsidized health insurance programs such as Medicare. Consider the following table illustrating hypothetical quantities of individual MRI testing procedures demanded and supplied at various prices, and then answer the questions that follow.

PriceQuantity DemandedQuantity Supplied
\(100100,00040,000
\)300
90,00060,000
\(50080,00080,000
\)70070,000100,000
\(90060,000120,000

(a) In the absence of a government-subsidized health plan, what is the equilibrium price of MRI tests? What is the amount of society’s total spending on MRI tests?

(b) Suppose that the government establishes a health plan guaranteeing that all qualified participants can purchase MRI tests at an effective price (that is, out-of-pocket cost) to the individual of \)100 per test. How many MRI tests will people consume?

(c) What is the per-unit price that induces producers to provide the amount of MRI tests demanded at the government-guaranteed price of $100? What is society’s total spending on MRI tests?

(d) Under the government’s coverage of MRI tests, what is the per-unit subsidy it provides? What is the total subsidy that the government pays to support MRI testing at its guaranteed price?

Why do you think that the federal government requires rail operators to mount expensive horns and sound them at prescribed decibel levels at all street crossings?

Discuss the central elements of theory of public choice

See all solutions

What do you think about this solution?

We value your feedback to improve our textbook solutions.

Study anywhere. Anytime. Across all devices.

Sign-up for free