Mr. Maurer Name: ____________________________ AP Economics 2008B Free Response Question (Short) – Externalities Vaccinations for contagious diseases benefit the consumers as well as others in the community. Assume that vaccines are produced in a competitive market. (a) Draw a correctly labeled graph of supply and demand, and (i) label the market price “Pm ”, and label the market output “Qm ”. (ii) label the socially efficient level of output “Qs”. (iii) shade the area of the deadweight loss. (b) Is marginal social cost greater than, less than, or equal to marginal social benefit at the market output? (c) How will a tax on producers of the vaccines affect the deadweight loss that you identified in part (a) (iii)? Explain. (a) 3 points: • One point is earned for the correctly labeled graph with Qm and Pm correctly identified. • One point is earned for correctly identifying QS. • One point is earned for shading the area of the deadweight loss. (b) 1 point: • One point is earned for stating that the MSC is less than the marginal social benefit. (c) 2 points: • One point is earned for stating that the tax will increase the deadweight loss. • One point is earned for the explanation that the tax raises the cost and causes output of vaccine to fall. Total = 6 points Mr. Maurer Name: ____________________________ AP Economics 2010 Free Response Question (Short) – Externalities The graph above shows the perfectly competitive market for hard candies in Country Alpha. In the graph the letters correspond to points, not areas. MPC denotes marginal private cost and MSB denotes marginal social benefit. (a) Using the labeling on the graph, identify the area representing each of the following at the market equilibrium. (i) The consumer surplus JP3M
(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.