The Equilibrium Point For Graphs A & B

The market is a place where buyers and sellers come together to make a business transaction. This market can be anything from the New York Stock Exchange to a roadside farmer’s stand, all of these markets are made up of both supply and demand schedules. Both supply and demand are affected by determinants that either shift the lines right or left or cause movement along the line. The point where the two lines intersect is the Equilibrium, the equilibrium point is simply it is where quantity demanded equals quantity supplied. An efficient market is when both the producer and consumer markets have allocated resources efficiently to the particular product and the all the costs of a product is accounted for. Moreover the equilibrium point for
Positive and negative externalities are both a bad thing for the market because a positive externality is when a third party benefits from a product, someone who isn’t considered as the initial consumer, therefore when the supplier sees the low demand they under allocate their resources creating a shortage. A negative externalities are when a third party that isn’t a consumer has to deal with the costs of the product. This can be financial costs associated with deterioration of health, these costs are mainly associated with adverse effects of a product like second hand smoke, or living downstream from a polluting river. This negative externality causes an overallocation of resources because the supplier doesn’t have to deal with the all of the costs tied to their product. This would lead the producer to increase their output of the product which would only increase the negative effects of the product. Decreasing societies health and satisfaction. Graphs C, shows the effect of negative externalities on a graph. The supply line is shifted right, increasing quantity (Q2) produced and the price decreased to P2. The allocatively efficient point is at P1 and Q1 on graphs C because that is when the firm has been held responsible for the costs of their products on initial consumers and the affected 3rd party, but
The way we try to fix the market is with government involvement, In the case of the soda problem cook county and several other municipalities have instituted a beverage tax of one cent per ounce. In the article it says that “Cook County Board President Toni Preckwinkle said the projected revenue from the soda tax — an estimated $224 million per year — ‘will allow us to avoid damaging cuts in the funding for public health and public safety’”(Erbentraut, paragraph 4). This is how the government tries to adjust the market back to the allocatively efficient point, taxes increase the cost to the producers shifting the supply line left, on Graph C this would mean an adjustment of the supply line back to where MSB = MSC making the market efficient again. This is important because the government is taxing the beverage company’s ignored costs imposed on the consumer and the third party. So with the tax the government is trying to compensate the costs in the market directly with the producers money. So the effect of this could be seen as Graph B fig 1 would revert back to the Graphs A where MSC = MSB, the supply curve shifts to the left as the taxes imposed increases the company’s cost resulting in a decrease in supply and returning the market back to