QUESTION 28 After accounting for externalities with a social

QUESTION 28 After accounting for externalities with a social cost curve, the new equilibrium would be such that equilibrium price is O lower than before and equilibrium quantity is higher than before. O higher than before and equilibrium quantity is higher than before. O lower than before and equilibrium quantity is lower than before. O higher than before and equilibrium quantity is lower than before. QUESTION 29 Externalities are effects of a transaction that O only help O only hurt people who are not part of that transaction either help or hurt leave unaffected QUESTION 30 For a previously illegal good, decriminalization will cause O supply to increase. O supply to become less elastic. - demand to become less elastic. O price to fall, unambiguously.

Solution

28. Option 4. higher than before and the equilibrium quantity is lower than before.

Explanation: In case of a negative externality, the private cost of production is lower than social cost. Therefore, the market equilibrium quantity is higher than the socially optimal quantity. So, the price needs to be increased to reduce the quantity produced so that marginal social benefits and marginal social costs are equal. So, after accounting externalities to the social cost curve, the new equilibrium would be such that equilibrium price is higher than before and quantity is lower than before.

29. Option 3. either help or hurt.

Explanation: Externalities can be positive or negative. Positive externality helps outside parties and negative externalities hurt outside parties.