Consider a market where the market supply is given by the function Pg = 10 +1.5Qs...

 

Transcribed Image Text:

Consider a market where the market supply is given by the function Pg = 10 +1.5Qs and the market demand is given by Pp = 80-2QD- a. Find the market equilibrium price and quantity. b. Assume that due to production there is a negative externality such that the marginal cost to society, due to externality, of the Qth unit produced is 1.50. (a) Find the social marginal cost function. (b) Find the socially efficient quantity and the maximum economic surplus that can be attained taking the externality into account. (c) Find the dead-weight loss. (d) Would a taxation policy eliminate dead-weight loss? If it can what should the tax rate be? (e) Would a substitution policy eliminate dead-weight loss? If it can what should the rate of substitution be? (f) Would a price ceiling policy eliminate dead-weight loss? If it can what should the price ceiling be? Would a price floor policy eliminate dead-weight loss? If it can what should the price floor be? Consider a market where the market supply is given by the function Pg = 10 +1.5Qs and the market demand is given by Pp = 80-2QD- a. Find the market equilibrium price and quantity. b. Assume that due to production there is a negative externality such that the marginal cost to society, due to externality, of the Qth unit produced is 1.50. (a) Find the social marginal cost function. (b) Find the socially efficient quantity and the maximum economic surplus that can be attained taking the externality into account. (c) Find the dead-weight loss. (d) Would a taxation policy eliminate dead-weight loss? If it can what should the tax rate be? (e) Would a substitution policy eliminate dead-weight loss? If it can what should the rate of substitution be? (f) Would a price ceiling policy eliminate dead-weight loss? If it can what should the price ceiling be? Would a price floor policy eliminate dead-weight loss? If it can what should the price floor be?

Answer rating: 100% (QA)

a To find the market equilibrium price and quantity we really want to compare the market organic market capabilities Ps PD 10 15Qs 80 2QD Improving on the equation 15Qs 2QD 70 Since quantity provided ... View the full answer