Q.1. The demand curve for restored historic buildings slopes
downward and the supply curve for restored historic buildings
slopes upward. The production of the 50th restored historic
building entails the following: • a private cost of $800,000; • a
private value of $650,000; • a social value of $800,000.
a) Is there an externality associated with this market? If your
answer is “Yes,” is the externality positive or negative?
b) Is there an external cost associated with the restoration of
the 50th historic building, or is there an external benefit? What
is the amount of that external cost or external benefit?
c) Is the market equilibrium quantity of restored historic
buildings less than, equal to, or greater than 50?
d) Is the socially optimal quantity of restored historic
buildings less than, equal to, or greater than 50?