raded Assignment l Due Sunday 10.11.15 at 11:30 PM Attempts: Averages Average: 8
ID: 1189784 • Letter: R
Question
raded Assignment l Due Sunday 10.11.15 at 11:30 PM Attempts: Averages Average: 8 3. Individual versus social costs and benefits Aa Aa In addition to providing private benefit to the individuals who purchase them, solar panels also benefit society as a whole by reducing global energy consumption. This additional benefit to society is known as a Because individuals who purchase solar panels bear the full cost but do not receive the full benefit of solar panel installations, the market equilibrium quantity of solar panels in an unsubsidized market is the socially optimal quantity. The graph below represents the annual private value (Private Value) of solar panels to consumers and the private cost (Private Cost) of solar panels to producers. Assume that, in addition to the benefit to individual buyers, the rest of society gets an additional $20,000 benefit from each house installed with solar panels. The social Value) of each solar panel installation is, therefore, $20,000 more than the private value at each quantity. value (Social Use the green line (triangle symbols) to graph the social value curve on the graph below. PRIGF (Thousands of dollars)Explanation / Answer
This additional benefit to society is known as externality.
Externality: This is the influence of outside element in economical activity that is enjoyed by a third party. Externality could be positive or negative.
The market equilibrium quantity of S.P in an unsubsidized market is lower the socially optimal quantity.
Since customers are not getting the full benefit out of the good, their demand will decrease and it leads to lowering optimal quantity in the market.
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