Suppose the supply curve of portable radio rentals in Golden Gate Park is given by P = 5 + 0.1Q, where P is the daily rent per unit in dollars and Q is the volume of units rented in hundreds per day. The demand curve for portable radios is 20 - 0.2Q. (L03)
a. If each portable radio imposes $3 per day in noise costs on others, by how much will the equilibrium number of portable radios rented exceed the socially optimal number?
b. How would the imposition of a tax of $3 per unit on each daily portable radio rental affect efficiency in this market?