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Chapter 5: Q 17 (page 122)

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.

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Most popular questions from this chapter

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.

Price	Quantity Demanded	Quantity Supplied
\(100	100,000	40,000
\)300	90,000	60,000
\(500	80,000	80,000
\)700	70,000	100,000
\(900	60,000	120,000

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(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?

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