microeconomics!!!!!!!!!!!!!!!!!!!

| March 14, 2016

Homework 3 Fall 2012

Due date: October 15th, 2012 Principles of Economics: Micro

1. Some Oakland, California residents are sick and tired of tripping over burger wrappers and soda cans, and the city is ready to do something about it. The Oakland City Council is proposing a tax on fast-food restaurants, gas station markets, liquor stores and convenience stores that serve take-out food or beverages. Councilwoman Jane Brunner, who wrote the legislation, estimates that the tax will raise approximately $237,000 per year, which would cover the cost of a clean-up crew and the initial purchase of trucks and equipment to keep the streets and sidewalks surrounding the city’s schools litter free. “Having a clean city affects everything,” Brunner said.

a) What is the external cost associated with take-out food and beverages?

b) Draw a graph to illustrate and explain why the market for take-out food and beverages is inefficient or socially inoptimal.

c) Draw a graph to illustrate and explain how Oakland’s policy might improve efficiency.

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