Suppose that the demand curve for an electronic tablet is:

P_d = 1200 – 4Q

The supply curve is:

P_S = 300 + 4Q

where Q is the number of tablets in thousands. P is the price of a tablet in dollars. Production of the tablets, considering the materials used, the wastes created, transportation, and packing, results in $20 of external costs per tablet.

a) Solve the equilibrium price and quantity in the tablet market without any regulation algebraically.

b) What is the net social benefit in the tablet market without any regulations? Solve for consumer surplus, producer surplus, and the externality damage algebraically. (Be careful about the units.)

c) If the correct Pigovian tax is instituted, what will be the new equilibrium price and quantity in the tablet market? Solve algebraically.

d) What is the net social benefit in the tablet market after the correct Pigovian tax is instituted? Solve for consumer surplus, producer surplus, the externality damage, and the tax revenues algebraically.

Answer rating: 100% (QA)

a Without regulation P d 12004Q Ps 3004Q When the market is in equilibrium demand supply 1200 4Q 300... View the full answer