Question: QUESTION 5- Suppose the demand for electricity is given by MPB = 5000 - Q, where MPB is the marginal private benefit when Q units

QUESTION 5- Suppose the demand for electricity is given by MPB = 5000 - Q, where MPB is the marginal private benefit when Q units are consumed. The marginal cost of supplying electricity is MC = 4Q. In addition, each unit consumed yields a marginal external cost equal to MEC = 1000.~ (i) Find the price and quantity for electricity under the competitive equilibrium, that is, in the absence of any government intervention. (2 marks) (ii) How many units of electricity will be consumed at the socially efficient outcome? ~ (2 marks) (iii) Indicate the solutions you obtain in part (i) and (ii) on a properly labelled diagram. (2 marks) [Total for Question 5: 6 marks] QUESTION 6 Consider the market for illegal drugs. Since this is an underground market where taxes cannot be imposed, think of how the government can curb the sale of illegal drugs. ~ Using appropriately labelled graph, compare the mechanisms/policies that can be used to target the sellers versus buyers of drugs. Reflect on the dilemma between ethics and the economic effectiveness of such policies. ~ [Total for Question 6: 4 marks]

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