Question 3 a,b,c,d,e

Econ 221 PS6 Spring 2023 3) Externality (5 points) The figure below shows the demand curve for farmers irrigating their land in a small town. Each acre of land irrigation generates salty runoff that winds up in a nearby river. The social cost curve below reflects the costs necessary to desalinate this river water so that farmers down river can irrigate their crops. a. What type of externality is this? (include positiveegative and consumption/production) Price $275 Mc social b. How much is the external cost of irrigation $250 per acre? $225 MC pvt $200 $175 $150 c. Without any intervention into the market, $125 how many acres of land will the town's $100 farmers irrigate? $75 $50 $25 D=MB DVt MB social What is the efficient (or socially optimal) 0 80 50 60 0 00 90 100 120 110 number of acres irrigated? Irrigation (acres) d. Without intervention in this market, what is the deadweight loss that arises as a result of the externality? Clearly label the area on the graph and calculate the dollar value. e. Suppose the government wants to internalize the externality and bring the market to the socially optimal quantity. Describe two policy options that you would recommend. Be specific about the exact amounts of each intervention