Question: For a successful attempt to a question, please show your reasoning and related calculation clearly. Suppose in a market of good G, the demand curve

For a successful attempt to a question, please show your reasoning and related calculation clearly.

Suppose in a market of good G, the demand curve and supply curve are given re- spectively by P: (loQD)2 P=Q where P denotes price; Q5 denotes quantity supplied; and Q9 denotes quantity de- manded. However, each unit of good G produced generates a positive of externality valued at $40. (Hint: you could assume that QB S 10.) (a) What is the total dollar value of externalities at the free market equilibrium? (10 marks) (b) What is the socially optimal quantity of good G produced and consumed? (10 marks) (c) What tax or subsidy policy could may lead to an socially optimal level of pro- duction and consumption? (10 marks)

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