1 Negative Externality Suppose that the private market for widgets is characterized by the following supply and inverse demand functions: D: P = 10-Q S: P = Q 1. Graph these functions in P/Q space. Locate the private market equilibrium price and quantity. 2. Now suppose that the EPA calculates that the marginal external cost of widget production is cha- racterized by: MD = $2. Graph the market with the externality and locate the the socially efficient equilibrium. How much dead weight loss was produced by the private market. = 3. Now suppose that the EPA revises their MEC estimate to: MD Q. Graph the market with the externality and locate the socially efficient equilibrium. Compare this with the outcome from part 2.
1 Negative Externality Suppose that the private market for widgets is characterized by the following supply and inverse demand functions: D: P = 10-Q S: P = Q 1. Graph these functions in P/Q space. Locate the private market equilibrium price and quantity. 2. Now suppose that the EPA calculates that the marginal external cost of widget production is cha- racterized by: MD = $2. Graph the market with the externality and locate the the socially efficient equilibrium. How much dead weight loss was produced by the private market. = 3. Now suppose that the EPA revises their MEC estimate to: MD Q. Graph the market with the externality and locate the socially efficient equilibrium. Compare this with the outcome from part 2.
Principles of Economics 2e
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ISBN:9781947172364
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Publisher:Steven A. Greenlaw; David Shapiro
Chapter12: Environmental Protection And Negative Externalities
Section: Chapter Questions
Problem 42P: Table 12.12, shows the supply and demand conditions for a firm that will play trumpets on the...
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![1 Negative Externality
Suppose that the private market for widgets is characterized by the following supply and inverse demand
functions:
D: P = 10-Q
S: P Q
1. Graph these functions in P/Q space. Locate the private market equilibrium price and quantity.
2. Now suppose that the EPA calculates that the marginal external cost of widget production is cha-
racterized by: MD = $2. Graph the market with the externality and locate the the socially efficient
equilibrium. How much dead weight loss was produced by the private market.
3. Now suppose that the EPA revises their MEC estimate to: MD = Q. Graph the market with the
externality and locate the socially efficient equilibrium. Compare this with the outcome from part 2.](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2Fa916a5bd-261e-4f97-bf66-42c000a42274%2F4773a7b1-cf81-4449-b402-32617ab4fee5%2Fv99r8ka_processed.png&w=3840&q=75)
Transcribed Image Text:1 Negative Externality
Suppose that the private market for widgets is characterized by the following supply and inverse demand
functions:
D: P = 10-Q
S: P Q
1. Graph these functions in P/Q space. Locate the private market equilibrium price and quantity.
2. Now suppose that the EPA calculates that the marginal external cost of widget production is cha-
racterized by: MD = $2. Graph the market with the externality and locate the the socially efficient
equilibrium. How much dead weight loss was produced by the private market.
3. Now suppose that the EPA revises their MEC estimate to: MD = Q. Graph the market with the
externality and locate the socially efficient equilibrium. Compare this with the outcome from part 2.
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