[20 marks total] The BC Provincial Government is considering a project that would use 5100 tonnes...

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[20 marks total] The BC Provincial Government is considering a project that would use 5100 tonnes of Zanthium as an input. The government would purchase the Zanthium on the open market. The demand and supply of Zanthium are described by the Marshallian demand function Qd = 30,000 - 10P and the supply function Qs = 7P - 4,000, where quantities are in tonnes and prices are in dollars per tonne. Production of Zanthium generates a positive externality that affects BC residents. The monetized value (in dollars) of the marginal external benefit is equal to 0.02Q, where Q is the quantity of Zanthium produced. (a) [10 marks] What change in net social benefits should be associated with the 5100 tonnes of Zanthium that would be used for the project? Explain using a suitable diagram or diagrams and show your working. (b) [10 marks] Zanthium and Vandium are substitutes. Vandium is traded in a competitive market. Demand and supply of Vandium are described by the functions Qd = 100,000 - 200P and Qs = 100P - 20,000, where the quantities are in tonnes and prices are in dollars per tonne. The purchase of the 5100 tonnes of Zanthium described in part (a) is expected to cause the quantity of Vandium demanded to increase by 12,000 tonnes at every price. Also, production of Vandium is subject to a $150 per tonne tax levied by the federal government. The federal government has standing. Given this additional information, what change in net social benefits should be associated with the 5100 tonnes of Zanthium that would be used for the project? Explain using a suitable diagram or diagrams and show your working. [20 marks total] The BC Provincial Government is considering a project that would use 5100 tonnes of Zanthium as an input. The government would purchase the Zanthium on the open market. The demand and supply of Zanthium are described by the Marshallian demand function Qd = 30,000 - 10P and the supply function Qs = 7P - 4,000, where quantities are in tonnes and prices are in dollars per tonne. Production of Zanthium generates a positive externality that affects BC residents. The monetized value (in dollars) of the marginal external benefit is equal to 0.02Q, where Q is the quantity of Zanthium produced. (a) [10 marks] What change in net social benefits should be associated with the 5100 tonnes of Zanthium that would be used for the project? Explain using a suitable diagram or diagrams and show your working. (b) [10 marks] Zanthium and Vandium are substitutes. Vandium is traded in a competitive market. Demand and supply of Vandium are described by the functions Qd = 100,000 - 200P and Qs = 100P - 20,000, where the quantities are in tonnes and prices are in dollars per tonne. The purchase of the 5100 tonnes of Zanthium described in part (a) is expected to cause the quantity of Vandium demanded to increase by 12,000 tonnes at every price. Also, production of Vandium is subject to a $150 per tonne tax levied by the federal government. The federal government has standing. Given this additional information, what change in net social benefits should be associated with the 5100 tonnes of Zanthium that would be used for the project? Explain using a suitable diagram or diagrams and show your working.

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ANSWER a The change in net social benefits associated with the 5100 tonnes of Zanthium that would be ... View the full answer