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Question:

Assume that the industry for parental control software for the Internet has spillover that methods that affect society as a whole.

a. On incorrectly labeled graph, show the existence of the spillover benefits. Label the following:

i) Price and quantity if the industry ignores the externality

ii) Price and quantity if the industry produces optimum level of output

iii) The area of overallocation or underallocation

b. Explain why this is an example of a market failure

c. Identify one policy the government can do to correct his market failure. Explain why this would be effective.

Assume that the industry for parental control software for the Internet has spillover benefits that affect society as a whole. a. On a correctly labeled graph, show the existence of these spillover benefits. Label the following: i. Price and quantity if the industry ignores the externality ii. Price and quantity if the industry produces optimum level of output iii. The area of overallocation or underallocation b. Explain why this is an example of a market failure. c. Identity one policy the government can do to correct this market failure. Explain why this would be effective