Consider the market for fertilizer (a substance added to soil to make plants grow more successfully)....

 

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Consider the market for fertilizer (a substance added to soil to make plants grow more successfully). We have the following information for this market: Supply (Private cost): P = 400 + 100Qs Social cost: P = 800+100QS Demand: Qd =16 -0.01P When fertilizer is applied to lawns, it runs off into neighbouring streams and ponds, killing fish and creating an external cost. a. (6 marks) What is the equilibrium price and quantity of fertilizer in an unregulated, competitive market? Draw the graph for the fertilizer market (Hint: the graph should include supply, demand and social cost curve). b. (8 marks) What is the efficient quantity of fertilizer? Suppose government imposes a tax equal to the marginal external cost to achieve the efficient quantity, what is the equilibrium price paid by consumers? How much is the tax? And how much tax revenue does government collect? c. (4 marks) What is the deadweight loss borne by society if the externality is left uncorrected? Consider the market for fertilizer (a substance added to soil to make plants grow more successfully). We have the following information for this market: Supply (Private cost): P = 400 + 100Qs Social cost: P = 800+100QS Demand: Qd =16 -0.01P When fertilizer is applied to lawns, it runs off into neighbouring streams and ponds, killing fish and creating an external cost. a. (6 marks) What is the equilibrium price and quantity of fertilizer in an unregulated, competitive market? Draw the graph for the fertilizer market (Hint: the graph should include supply, demand and social cost curve). b. (8 marks) What is the efficient quantity of fertilizer? Suppose government imposes a tax equal to the marginal external cost to achieve the efficient quantity, what is the equilibrium price paid by consumers? How much is the tax? And how much tax revenue does government collect? c. (4 marks) What is the deadweight loss borne by society if the externality is left uncorrected?

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a In an unregulated competitive market the equilibrium price and quantity of fertilizer can be found ... View the full answer