Answer to Question #296872 in Microeconomics for afsane

Question

Consider the market for fire extinguishers.

a. Why might fire extinguishers exhibit positive externalities?

b. Draw a graph of the market for fire extinguishers, labeling the demand curve, the social-value curve, the supply curve, and the social-cost curve.

c. Indicate the market equilibrium level of output and the efficient level of output. Give an intuitive explanation for why these quantities differ.

d. If the external benefit is $10 per extinguisher, describe a government policy that would yield the efficient outcome.

Answer 1

a. Fire extinguishers exhibit positive externalities because, even though people buy them for their own use, they may prevent fire from damaging the property of others.

b.

c.

The equilibrium level of output is the level of production at which demand equals output.

Effective output is the marginal revenue equals the marginal cost of output.

d.

The state can give subsidies to producers and buyers or reduce taxes for producers.