Suppose the marginal benefits and costs per gallon of gasoline in the United States are modeled as follows to illustrate the negative externality of gasoline combustion:

MSB = 12.80 – 0.42Q 

MPB = 12.80 – 0.4Q

MSC = MPC = 1.25 + 0.02Q    

where Q is millions of gallons.

a. State the equation that represents the market externality. Give the economic interpretation of this equation, using its specific numerical value(s). 

b. Find the efficient equilibrium, P_E and Q_E, for this market. (Do not round off.) 

c. Find the dollar value of a per unit gasoline tax that would achieve the efficient solution, and calculate the tax revenues generated to the government as a result.