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Many observers believe that the levels of polluti…

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Problem 3 Medium Difficulty

Greater consumption of alcohol leads to more motor vehicle accidents and, thus, imposes costs on people who do not drink and drive.
a. Illustrate the market for alcohol, 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.
b. On your graph, shade the area corresponding to the deadweight loss of the market equilibrium. ($Hint$: The deadweight loss occurs because some units of alcohol are consumed for which the social cost exceeds the social value.) Explain.


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Principles of Economics

Chapter 10

Externalities

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Markets and Welfare

Introduction

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