Figure 18P-6 shows the daily market for water-skiing permits on El Dorado Lake. Suppose each skier (each permit) causes $4 of damage to the lake.
a. Calculate the loss of surplus if there is no government intervention in this market.
b. Suppose the government imposes a $12 tax on suppliers of ski permits. Compared to no intervention, what is the net surplus gain or loss from this tax?
c. What is the socially optimal level of water skiing?