externality. 3. Consider the market for fire extinguishers. a. Why might fire extinguishers exhibit...

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externality. 3. Consider the market for fire extinguishers. a. Why might fire extinguishers exhibit positive externalities? b. Draw a graph of the market for fire extinguishers, labeling the demand curve, the social-value curve, the supply curve, and the social-cost curve. Indicate the market equilibrium level of output and the efficient level of output. Give an intuitive explanation for why these quantities differ. d. If the external benefit is $10 per extinguisher, describe a government policy that would yield the efficient outcome.

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David · Accepted Answer

a.
Fe are used to douse fire and minimise the damages from fire. It represents an externality because if a person buys and uses a fire extinguisher then it helps her to save herself from the fire as well as save others who have not paid for the fire extinguisher. So the benefit of the fire extinguisher reaches those who have not bought/paid for the fire extinguisher—this shows a positive externality.

externality. 3. Consider the market for fire extinguishers. a. Why might fire extinguishers exhibit positive externalities? b. Draw a graph of the market for fire extinguishers, labeling the demand...

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