To analyze the given data and determine whether the product has external benefits or external costs, and to measure the size of the externality in monetary terms per unit, we will follow these steps:
Step 1: Understand the concept of externalities.
- External benefits: Occur when the social quantity demanded is greater than the market quantity demanded, suggesting positive spillover effects to society.
- External costs: Occur when the social quantity demanded is less than the market quantity demanded, indicating negative spillover effects to society.
Step 2: Compare market quantity demanded with social quantity demanded.
Given data:
1. Price = \[tex]$20, Market Quantity Demanded = 10, Social Quantity Demanded = 20
2. Price = \$[/tex]18, Market Quantity Demanded = 20, Social Quantity Demanded = 30
3. Price = \[tex]$16, Market Quantity Demanded = 30, Social Quantity Demanded = 40
4. Price = \$[/tex]14, Market Quantity Demanded = 40, Social Quantity Demanded = 50
5. Price = \[tex]$12, Market Quantity Demanded = 50, Social Quantity Demanded = 60
6. Price = \$[/tex]10, Market Quantity Demanded = 60, Social Quantity Demanded = 70
By comparing the market quantities to the social quantities at each price:
- At \[tex]$20: 10 units vs. 20 units
- At \$[/tex]18: 20 units vs. 30 units
- At \[tex]$16: 30 units vs. 40 units
- At \$[/tex]14: 40 units vs. 50 units
- At \[tex]$12: 50 units vs. 60 units
- At \$[/tex]10: 60 units vs. 70 units
Step 3: Determine if there are external benefits or external costs.
From the comparisons, we can observe that in each case, the social quantity demanded is greater than the market quantity demanded. This indicates that at all price points, there are external benefits.
Therefore, this product has external benefits.
Step 4: Calculate the size of the externality.
To determine the size of the externality per unit, we need to find the maximum difference between the social quantity demanded and the market quantity demanded:
- At \[tex]$20: 20 - 10 = 10 units
- At \$[/tex]18: 30 - 20 = 10 units
- At \[tex]$16: 40 - 30 = 10 units
- At \$[/tex]14: 50 - 40 = 10 units
- At \[tex]$12: 60 - 50 = 10 units
- At \$[/tex]10: 70 - 60 = 10 units
The differences are consistently 10 units across all price levels. Hence, the externality per unit is 10 units.
Result:
a. The product has external benefits.
b. The size of the externality is [tex]\( \$10 \)[/tex] per unit.
