1. The supply of paper is described by the following equation: Qs = 5,000P where Q is tons supplied per year and P is the price per ton. The demand is described by QD= 400,000 1,000P where QD is tons demanded per year. Because of the pollution associated with paper production, marginal external costs of $20 are associated with each ton of paper. Assuming that paper is sold in a competitive market, what is the market price? How many tons of paper will be produced per year at that price? What is the efficient annual output of paper? How can a corrective tax achieve efficiency?

1. The supply of paper is described by the following equation: Qs = 5,000P where Q is tons supplied per year and P is the price per ton. The demand is described by QD= 400,000 1,000P where QD is tons demanded per year. Because of the pollution associated with paper production, marginal external costs of $20 are associated with each ton of paper. Assuming that paper is sold in a competitive market, what is the market price? How many tons of paper will be produced per year at that price? What is the efficient annual output of paper? How can a corrective tax achieve efficiency?

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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