The demand for energy-efficient appliances is given by P = 100/Q, while the inverse supply (and marginal private cost) curve is MPC = Q. By reducing demand on the electricity network, energy-efficient appliances generate an external marginal benefit according to MEB = eQ.
a) What is the equilibrium amount of energy-efficient appliances traded in the private market?
b) If the socially efficient number of energy-efficient appliances is Q = 20, what is the value of e?
c) If the government subsidized production of energy efficient appliances by $S per unit, what level of the subsidy would induce the socially efficient level of production?