The demand and supply curves of fire extinguishers are given by Qa= 10,000 - 10P and Qs = 15P, respectively. Each fire extinguisher bought by consumers causes an external benefit of $4 (external benefit from consumption). The production process of fire extinguishers does not have any impact on bystanders in the economy. a) Without any consideration of the externality, how much are the market-equilibrium price and quantity of fire extinguishers? Depict this market equilibrium on a graph. b) Is there any externality in this market? If yes, is it negative or positive?

The demand and supply curves of fire extinguishers are given by Qa= 10,000 - 10P and Qs = 15P, respectively. Each fire extinguisher bought by consumers causes an external benefit of $4 (external benefit from consumption). The production process of fire extinguishers does not have any impact on bystanders in the economy. a) Without any consideration of the externality, how much are the market-equilibrium price and quantity of fire extinguishers? Depict this market equilibrium on a graph. b) Is there any externality in this market? If yes, is it negative or positive?

Economics: Private and Public Choice (MindTap Course List)

16th Edition

ISBN:9781305506725

Author:James D. Gwartney, Richard L. Stroup, Russell S. Sobel, David A. Macpherson

Publisher:James D. Gwartney, Richard L. Stroup, Russell S. Sobel, David A. Macpherson

Chapter5: Difficult Cases For The Market And The Role Of Government

Section: Chapter Questions

Problem 10CQ

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