1. Suppose demand is Q_D = 16 - P supply is Q_S = P. There is a constant positive externality of $4 per unit (Marginal External Benefit, MEB = $4).  

a. Draw the graph of the MC, MB and MSB curves.  Identify the level of the intercepts.

b. Calculate total surplus if the market is at the point where MC=MB.

c. What is the DWL loss at this point (MC=MB)?  Identify on your graph.

d. Calculate total surplus if the market is at the point where MC=MSB.

Answer rating: 100% (QA)

a To draw the graph of the MC MB and MSB curves we need to first identify the parameters of the prob... View the full answer