The market demand for cigarettes are given in the following table.
Price ($ per pack) ......................... 6.506.005.505.004.504.003.50
Quantity (packs per day) .......................... 40 50 60 70 80 90 100
Suppose further that smoking creates external costs valued at 50 cents per pack.
(a) Draw the social and market demand curves.
Given a market price of $3.50,
(b) What quantity is demanded in the market?
(c) What is the socially optimal quantity?