Chapter 10 Problems and Applications 5. A local drama company proposes a new nei

Question

Chapter 10 Problems and Applications

5. A local drama company proposes a new
neighborhood theater in San Francisco. Before
approving the permit, the city planner completes
a study of the theater’s impact on the
surrounding community.

a. One finding of the study is that theaters
attract traffic, which adversely affects the
community. The city planner estimates that
the cost to the community from the extra
traffic is $5 per ticket. What kind of an externality
is this? Why?

b. Graph the market for theater tickets, labeling
the demand curve, the social-value curve,
the supply curve, the social-cost curve, the
market equilibrium level of output, and the
efficient level of output. Also show the perunit
amount of the externality.

c. Upon further review, the city planner uncovers
a second externality. Rehearsals for the
plays tend to run until late at night, with
actors, stagehands, and other theater members
coming and going at various hours. The
planner has found that the increased foot
traffic improves the safety of the surrounding
streets, an estimated benefit to the community
of $2 per ticket. What kind of externality
is this? Why?

d. On a new graph, illustrate the market for
theater tickets in the case of these two externalities.
Again, label the demand curve, the
social-value curve, the supply curve, the
social-cost curve, the market equilibrium
level of output, the efficient level of output,
and the per-unit amount of both externalities.

e. Describe a government policy that would
result in an efficient outcome.

Explanation / Answer

a.) Since, the externality of traffic cause a negative impact on the surroundings and that negative impact is taken into consideration in the ticket. It is a negative externality. c.) Upon the increases safety of the streets which is an added advantage, it is a positive externality. Rest answers, I can't help. Thank You

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