Describe the effects (changes in quantity, price, consumer surplus, and producer surplus) of a product ban...

	Describe the effects (changes in quantity, price, consumer surplus, and producer surplus) of a product ban on asbestos insulation in each of the following markets:
a.		Market for Asbestos Insulation
b.		Market for Asbestos Fiber
c. (6 points)		Market for Asbestos Clothing
d.		Assuming the above are the only markets impacted by the ban on asbestos insulation, what is the Total Cost to society?
e.		Explain how you would determine if there is a Net Benefit or a Net Cost to society due to the product ban on asbestos insulation. That is, how would you account for the benefits of the ban?

Solutions

Expert Solution

Asbestos insulation - Due to ban, supply will decrease and equilibrium quantity will decrease. This will also lead to the development of a black market in the economy where the price of the product will be higher and consumer surplus will be low while producer surplus will be very high.
Market for Asbestos Fiber - Demand for the fiber will decrease and demand curve shifts to left. Thus both equilibrium price and quantity will decrease. Consumer surplus will not get affected but producer surplus will reduce.
Market for Asbestos Clothing - Preference for asbestos will decrease and thus demand will decrease and demand curve shifts to left. Thus both equilibrium price and quantity will decrease. Consumer surplus will not get affected but producer surplus will reduce.
Cost to the society is the change in their expenditure between asbestos and it substitutes. It is beneficial for the society as it will reduce pollution.

Rahul Sunny answered 1 year ago

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