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Is a ban on incandescent bulbs socially efficient? What about leaving the decision to the market?...

Is a ban on incandescent bulbs socially efficient? What about leaving the decision to the market? Explain your answer with a graph.

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Expert Solution

Suppose there is a new alternative (LED bulb) in the market, which is costlier than I. bulb but has longer life. The profit margin of LED bulb to supplier is higher than I. bulb. This tends to an increasing supply of LED bulbs and a lowering supply of I. bulbs in the market. This happens because production facilities are limited, and the suppliers have to choose either of these two products.

It reduces supply of I. bulb, the supply curve (S1) would shift to the left. The equilibrium becomes E1, where price increases to P1; since price increases, equilibrium quantity decreases to Q1.

Few letter, supply would fall again and the curve (S2) shifts again. This creates further increase in price to P2 and demand falls further to Q2.

In this way demand will vanish one time.

Rahul Sunny answered 6 months ago
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