Question: The following data show how the marginal external benefit and
The following data show how the marginal external benefit and marginal private benefit associated with a soil treatment agent to control Japanese beetles vary
with the gallons of the control agent sold per year: Draw the demand curve for the control agent and show how the marginal private benefit differs from the marginal social benefit. Suppose the supply of the agent is infinitely elastic at the current price of $25 per gallon. Will the market equilibrium be efficient? How would your answer differ if the market supply were infinitely elastic at a price of $15 per gallon? What policies could you suggest to achieve efficiency?
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