Let's create a somewhat more complicated situation. The market for beeswax candles is shown in the following table:
Suppose the community derives a positive externality of $10 per box. The bees pollinate the flowers, which adds value to the community's appearance. But at the same time, they are a menace to the community because they are voracious stingers. The negative externality is estimated to be $10 per box. What is the extent of market failure in this situation? What price and quantity does the market generate, and what price and quantity should it generate to achieve an efficient use of resources? How can this out come be obtained?
Answer to relevant QuestionsCanadians are worried. Many of their bright and educated young people head south to the United States to find employment. Why would they do that? Why might a farm worker in Zambia earn less than a farm worker in Canada? If the United States and Mexico agree to free movement of workers across their borders, wage rates in some U.S. labor markets would fall, but wage rates in some Mexican labor markets would rise. Explain. Why do unions strike? Do strikes always benefit workers? If you know how wage rates are determined, you should know how interest rates are determined. The same tools apply. Discuss.
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