Only the 5 numbered cells are required!

Sample Math Problem 2 Consider electricity production, which we have previously established has a negative externality in part due to acid rain. To account for this, the government plans to impose either free permits or auctioned permits to address the market failure and lead to the efficient outcome. Suppose that aggregate supply (private marginal cost) is P = MCPrivate = 200 + Q, and that aggregate demand (private marginal benefit) for electricity is given by P = MB = 500 Q. The emissions (SO2, NOX, etc.) from producing electricity from coal cause damage in the form of acid rain (mostly in areas downwind of the plants). Suppose that the marginal external cost (per unit of electricity) from acid rain is given by X = 100. Efficient Outcome Unregulated Equilibrium Free Permits Auctioned Permits MCSociar MCsocia MCsociaf MCSociaf Social marginal cost Quantity (Q* or Q) NIA 1) Price (P) N/A NA 3) Permit value NIA 4) Consumer surplus (CS) N/A NA N/A Producer surplus (PS) 2) N/A Joint surplus (JS* or JS) NA N/A Total external cost (TX* or TX) N/A N/A N/A Permit revenue NIA N/A Total surplus (TS* or TS) N/A N/A 5) Deadweight loss (DWL) N/A N/A NA Sample Math Problem 2 Consider electricity production, which we have previously established has a negative externality in part due to acid rain. To account for this, the government plans to impose either free permits or auctioned permits to address the market failure and lead to the efficient outcome. Suppose that aggregate supply (private marginal cost) is P = MCPrivate = 200 + Q, and that aggregate demand (private marginal benefit) for electricity is given by P = MB = 500 Q. The emissions (SO2, NOX, etc.) from producing electricity from coal cause damage in the form of acid rain (mostly in areas downwind of the plants). Suppose that the marginal external cost (per unit of electricity) from acid rain is given by X = 100. Efficient Outcome Unregulated Equilibrium Free Permits Auctioned Permits MCSociar MCsocia MCsociaf MCSociaf Social marginal cost Quantity (Q* or Q) NIA 1) Price (P) N/A NA 3) Permit value NIA 4) Consumer surplus (CS) N/A NA N/A Producer surplus (PS) 2) N/A Joint surplus (JS* or JS) NA N/A Total external cost (TX* or TX) N/A N/A N/A Permit revenue NIA N/A Total surplus (TS* or TS) N/A N/A 5) Deadweight loss (DWL) N/A N/A NA