ECO 2023 Homework 5 Questions and Answers Verified

ECO 2023 Homework 5 Questions and Answers Verified. In a study at a large state university, students were randomly assigned roommates. Researchers found that, on average, males assigned to roommates who reported Chapter Summary and Problems 165 drinking alcohol in the year before entering college had GPAs one-quarter point lower than those assigned to nondrinking roommates. For males who drank frequently before college, being assigned to a roommate who also drank frequently before college reduced their GPAs by two-thirds of a point. Draw a graph showing the price of alcohol and the quantity of alcohol consumption on college campuses. Include in the graph the demand for drinking and the private and social costs of drinking. Label any deadweight loss that arises in this market. Based on Michael Kremer and Dan M. Levy, “Peer Effects and Alcohol Use Among College Students,” Journal of Economic Perspectives, Vol. 22, No. 3, Summer 2008, pp. 189–206. The question relates to the case of negative consumption externalities, which arises when the consumption decision of one individual decreases the welfare of another individual, who is not related to the consumption. In the above diagram, we have: D1 = market demand curve for alcohol which also represents marginal private benefit MB). D2 = the demand curve for alcohol which represents marginal social benefit (MSB).