2004 Independent MC (1 Viewer)

[~ ReNcH ~]

I have a question from the 2004 Independent paper and with most questions about the environment, this one's got me stumped

The following diagram (attached) shows the market for an environmental good such as native forests.

In the diagram what does the price OP represent?
(A) The price at which the optimum production for society occurs.
(B) The price which results in significant social costs of harvesting native forests.
(C) The price at which the costs and benefits to society of harvesting native forests are equal.
(D) A price which illustrates the effect of government intervention in the market.

I said (C). A lot of the guys in my class said (B). We don't have the answers and nobody really seems to be able to justify their choices convincingly.

 

[azza_3761]

I'd say A. It shows the optimum production for society occurs At any other point the people in society would have to pay money to ensure continual mantainance on the resourse.

In B there doesn't appear to be any social costs to society and therefore i believe it isn't B

Cant be C because costs and benefits aren't equal.

It's not D because the gov't wouldn't intervene in this situation. No need to...no benifits.

 

[mattchan]

I reckon A too.

 

[spirit21]

its b, definitelly b
think about it, no possibility to be anything else

 

[Sarah168]

I'd say A. It shows the optimum production for society occurs At any other point the people in society would have to pay money to ensure continual mantainance on the resourse.

In B there doesn't appear to be any social costs to society and therefore i believe it isn't B

Cant be C because costs and benefits aren't equal.

It's not D because the gov't wouldn't intervene in this situation. No need to...no benifits.

there are 4 main points. private benefit, private cost, social benefit, social cost. Where social cost = social benefit = socially optimal output

OP shows private costs= private benefits so the amount of output associated with it does not take into acocunt environmental concerns...resulting in social costs for society

so it has to be B

 

[Cityboy]

It can't be B as at OP the social cost is relatively low

 

[Sarah168]

how would you know it is relatively low?

read the graph again. OP shows the dotted line leading to the intersection of private costs and private benefits. The productionof the privately efficient quantity does not take into account negative externalities

 

[sunjet]

It's B, just look at market failure in your textbook.

 

[Cityboy]

You know it is relatively low by reading the graph, this question does not require you take negative externalities into account

 

[Z_Nizzle]

It can't be B as at OP the social cost is relatively low

Wrong. At OP the social cost is not low, LOOK at the quantity difference (Q- Q1). Therefore satisfying private wants comes at a price to society. Keep in mind that (P1-Q1) would be the socially accepted optimum. So therefore the answer would most certainly be B.

 

[Vampire]

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