In today's world, meetings between leaders of nations can be costly to arrange, but they benefit the leaders of the world by increasing their domestic approval ratings. These meetings can often be critical in avoiding large-scale conflicts that can turn the course of history; for this reason, there is often an external benefit to these diplomatic meetings.

Suppose the following:

• The marginal cost of meetings, units of thousands of dollars/meeting/month, is given by MC = Q

• The marginal benefit of meetings, in units of thousands of dollars/meeting/month, is given by MB = 60 - 3Q

• The external marginal benefit of meetings, in units of thousands of dollars/meeting/month, is given by EMB = 20 - Q.

1) Certain diplomatic leaders feel that these meetings are altogether useless in preventing conflict and consider a motion to end all these meetings. Would there be any deadweight loss in this case, and if so, how much? How does this compare to the dead weight loss of the free (unregulated) market?

2) The U.N. comes to the conclusion that a Pigouvian. Subsidy would be the ideal way to ensure that the socially efficient quantity of meetings is reached. Calculate the permecting subsidy that would be appropriate to achieve this goal as well as the total amount the U.N. will spend by enacting this subsidy.

Answer rating: 100% (QA)

Marginal social benefit MSB MB EMB 60 3Q 20 Q 80 4Q 1 a Efficiency is maximized when MSB MC 80 4Q Q ... View the full answer