Microeconomics

Running head: MICROECONOMICS
Microeconomics
Name of the Student
Name of the University
Author Note

MICROECONOMICS1
Table of Contents
Answer 1....................................................................................................................................2
Answer 2....................................................................................................................................3
Answer 3....................................................................................................................................5
Answer 4....................................................................................................................................6
Answer 5....................................................................................................................................8
Answer 6..................................................................................................................................10
References................................................................................................................................13

MICROECONOMICS2
Answer 1
Figure 1: Negative
externality
Source: (Created by the Author)
In figure 1, the equilibrium of Malaysian garlic market is given by the equilibrium
price $5 and quantity Q1 that occurs at the intersection point between marginal private cost
(MPC) and marginal private benefit (MPB) curve. However, at the quantity there is negative
externality causing from bad breath that created a marginal social cost (MSC), the curve
related to it is shown in the figure. The negative externality generated a social cost in the
form of deadweight loss shown as yellow triangle in the above figure (Demir et al., 2015).
The social cost is equivalent to $2. In the figure, it can be seen that at quantity Q2 where the
price is $7 the deadweight loss can be removed as the price difference is $2 which is
equivalent to the social cost $2. Hence, at this point the consumer surplus decreases and price

MICROECONOMICS3
is higher than the free market (Song, Brown & Glantz, 2014). Thus, this equilibrium is not a
perfectly competitive one.
Devangi suggests that by taxing $2 per kilogram on garlic to maximize social surplus.
From the discussion in the above paragraphs, it can be understood that by taxing the price of
garlic increases to $7 and that will decrease the demand and shifts the MPC curve to left and
the equilibrium price and quantity is $7 and Q2 respectively (Pearce, 2014). Under this tax
policy there will be no deadweight loss as it was in perfectly competitive equilibrium, thus
social gain is higher under $2 tax policy.
Answer 2
Figure 2: Oat
Market
Source: (Created by the Author)
The findings by scientists regarding consumption of oats is a positive as everyone
wants skin glowing skin and healthy hair. This will increase the consumption of oat and thus