4. Consider a manufactured good whose production process generates pollution. The demand for the product is Q-100-3P. The market supply function is Q=P. The marginal external cost is MEC=2Q. a. What is the equilibrium price and quantity in a market with no environmental policy? Graph your answer. b. What is the deadweight loss from the pollution damage. Label this on your graph. c. What is the socially optimal quantity of the good and the socially optimal price? Label on your graph. What is the price elasticity of demand and the price elasticity of supply at this optimum?

4. Consider a manufactured good whose production process generates pollution. The demand for the product is Q-100-3P. The market supply function is Q=P. The marginal external cost is MEC=2Q. a. What is the equilibrium price and quantity in a market with no environmental policy? Graph your answer. b. What is the deadweight loss from the pollution damage. Label this on your graph. c. What is the socially optimal quantity of the good and the socially optimal price? Label on your graph. What is the price elasticity of demand and the price elasticity of supply at this optimum?

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Question

4. Consider a manufactured good whose production process generates pollution.
The demand for the product is Q-100-3P. The market supply function is Q=P.
The marginal external cost is MEC=2Q.
J
a.What is the equilibrium price and quantity in a market with no environmental
policy? Graph your answer.
b. What is the deadweight loss from the pollution damage. Label this on your
graph.
c. What is the socially optimal quantity of the good and the socially optimal price?
Label on your graph. What is the price elasticity of demand and the price elasticity of
supply at this optimum?
d. What is the emissions tax that needs to be imposed to achieve the social
optimum? Add this to your graph.
e. What is the economic incidence of this emissions tax? In other words, what
proportion of this tax will be paid by producers of this product and what
proportion of the tax will be paid by consumers?

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