1. Analyze the following statement. Is garbage a positive or negative external- ity? Why is a market solution practical here? Since the turn of the twentieth century, hog farmers in New Jersey fed Philadelphia garbage to their pigs. Philadelphia saved $3 million a year and reduced its garbage mound by al- lowing New Jersey farmers to pick up leftover food scraps for their porcine recyclers .The city paid $1.9 million to the New Jersey pig farmers for picking up the waste eachyear, which was about $79aton. Otherwise, the citywould have had to pay $1 25 a ton for curbside recycling ofthe same food waste. 2. Northern Victoria , Australia , imposed a vomit tax on pubs in the Greater Shepparton area that remain open between 3:00 am. and 6:00 am. The tax was to be used to pay for cleaning up the mess left by drunks who get sick in the street. Pub owners objected that politicians assume that their customers are responsible for the mess. Discuss the pros and cons of using such a tax to deal with this externality. 3. Suppose that the only way to reduce pollution from paper production is to reduce output . The government imposes a tax equal to the marginal harm from the pollution on the monopoly producer . Using a graph , show that the tax may raise welfare. 4. Suppose that the inverse demand curve for paper is p =200 Q,the private marginal cost (unregulated competitive market supply )is M C? = 80+ Q,and the marginal harm from pollution is M Cg = Q. (a) What is the unregulated competitive equilibrium '5' (b) What is the social optimum ? What specific tax (per unit of output) results in the social optimum