Example of the good that has positive externnility is the education service. The benefit it has provided to the users has more social benefits than the private benefits. Private benefits in this case will be the advantages that an individual user gets whereas public benefit is what the society gain due to increasing rate of literacy and overall growth.
Example of de-merit goods, which posses negative externality can be alcohol or cigarettes. These kinds of products reduce the ‘social marginal benefit of consumption’ and government usually taxed those products (Tutor 2 U, n.d.).
2. A. If Bart can charge only one price then he should charge $7 as only this way he can sale the maximum meal and can earn maximum revenue. Charging more than it would lead to loosing of one meal. The combination of charges and revenues can be presented with the help of one table.
It has been mentioned that marginal cost of providing a meal is constant at $5. Therefore, producer’s surplus will be $2 ($7 – $5). Consumer surplus will be different for all the customers. Consumer surplus for Bob, Sue and Katie will be $0, $1 and $8 respectively.
2. B. Price discrimination is not possible in such case. For price discrimination, it is necessary to know the type of customer and also the amount of money. Only then, the shopkeeper can charge different price to the different customer. In that case, Bart will charge $7 from the group or from all of them. It is because, Bart knows that one of them has $7 and if he will charge more than that then he would loose one meal. Charging $7, he is able to earn revenue of $21 and that is the maximum revenue he can earn.
2. C. Being perfectly price discriminate, Bart should charge three different prices from three of them. For Bob, price should be $7 as it is the highest amount he can pay. Thus, Bart can gain $2 and he would