The inverse demand for leather is given by P = 50 - 0.5Q. The industry supply of
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a. Suppose that the government wishes to reduce the externality to efficient levels by imposing a restriction on quantity (a quota). What maximum level of output should it set for leather production? What price would prevail in the marketplace once this quota is in place?
b. Suppose that the government wishes to reduce the externality to efficient levels by levying a tax on leather production. How high would that tax need to be? What is the resulting net price paid by buyers once the tax is in place? How much leather is bought and sold with the tax in place?
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Related Book For
Microeconomics
ISBN: 9781464146978
1st Edition
Authors: Austan Goolsbee, Steven Levitt, Chad Syverson
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