Scenario 10-4 the Demand Curve for Fire Extinguishers Slopes Downward and the and the Supply

question 125

Essay

Scenario 10-4
The demand curve for fire extinguishers slopes downward and the supply curve for fire extinguishers slopes upward. The production of the 500^th fire extinguisher entails the following:
• a private cost of $10;
• an external cost of $0;
• a private value of $9;
• an external benefit of $3.
-Refer to Scenario 10-4. In order to reach the social optimum, should fire extinguishers be taxed or subsidized? What is the appropriate amount of the tax or subsidy on each fire extinguisher?

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Definitions:

Atomic Open Sentence

An atomic open sentence is a type of logical statement that contains variables and is either true or false depending on the values of those variables.

Truth-functional

Pertaining to a logical relation where the truth value of a compound proposition is determined by the truth values of its components.

Atomic

Relating to the basic, indivisible components of matter.

Truth-functional Compound

A logical statement whose truth value depends solely on the truth values of its components.