.. The information below provides the prices and quantities in a hypothetical market for automobile antifreeze....

  

Transcribed Image Text:

.. The information below provides the prices and quantities in a hypothetical market for automobile antifreeze. Use your work to answer T/F questions Price (S per gallon) SO $1 $2 $3 $4 $5 $6 $7 $8 Qd (gallons) 800 700 600 500 400 300 200 100 0 Qs (gallons) 200 300 400 500 600 700 800 900 1000 a. Plot the supply and demand curves for antifreeze on the axes provided on the next page. b. What is the equilibrium price (Pm) and quantity (Qm) generated by buyers and sellers in this market? Clearly label this equilibrium in your diagram. c. Suppose that the production of antifreeze generates pollution in the form of chemical runoff and that the pollution imposes a $2 cost on society for each gallon of antifreeze produced. Draw the (marginal) social cost curve in your diagram and clearly label this curve (MSC) d. What is the optimal quantity of antifreeze production? Clearly label this quantity (Q*) on your diagram. Given the market outcome of Qm, does the market over-produce/consume or under-produce/consume antifreeze? Briefly explain your answer and be sure to refer to your diagram in explaining any inefficiency. .. The information below provides the prices and quantities in a hypothetical market for automobile antifreeze. Use your work to answer T/F questions Price (S per gallon) SO $1 $2 $3 $4 $5 $6 $7 $8 Qd (gallons) 800 700 600 500 400 300 200 100 0 Qs (gallons) 200 300 400 500 600 700 800 900 1000 a. Plot the supply and demand curves for antifreeze on the axes provided on the next page. b. What is the equilibrium price (Pm) and quantity (Qm) generated by buyers and sellers in this market? Clearly label this equilibrium in your diagram. c. Suppose that the production of antifreeze generates pollution in the form of chemical runoff and that the pollution imposes a $2 cost on society for each gallon of antifreeze produced. Draw the (marginal) social cost curve in your diagram and clearly label this curve (MSC) d. What is the optimal quantity of antifreeze production? Clearly label this quantity (Q*) on your diagram. Given the market outcome of Qm, does the market over-produce/consume or under-produce/consume antifreeze? Briefly explain your answer and be sure to refer to your diagram in explaining any inefficiency.

Answer rating: 100% (QA)

Answer 1 General guidance The ... View the full answer