Assume that the extraction of water from an aquifer by a coal mining company imposes a cost on farmers that grow citrus crops. Assume that the supply curve for coal is given by the following: p = 240 +2Q. Further, assume that the demand curve for coal is given by the following: p = 900 – 3Q. If the marginal external cost (MEC) of coal mining is equal to 0.5Q, which of the following is true? At the competitive equilibrium a deadweight loss of 396 occurs and a Pigouvian tax of 60 will lead to an efficient outcome. At the competitive equilibrium a deadweight loss of 792 occurs and a Pigouvian tax of 60 will lead to an efficient outcome. At the competitive equilibrium a deadweight loss of 396 occurs and a Pigouvian tax of 120 will lead to an efficient outcome. At the competitive equilibrium a deadweight loss of 792 occurs and a Pigouvian tax of 120 will lead to an efficient outcome. None of the above.
Assume that the extraction of water from an aquifer by a coal mining company imposes a cost on farmers that grow citrus crops. Assume that the supply curve for coal is given by the following: p = 240 +2Q. Further, assume that the demand curve for coal is given by the following: p = 900 – 3Q. If the marginal external cost (MEC) of coal mining is equal to 0.5Q, which of the following is true?
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At the competitive equilibrium a |
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At the competitive equilibrium a deadweight loss of 792 occurs and a Pigouvian tax of 60 will lead to an efficient outcome. |
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At the competitive equilibrium a deadweight loss of 396 occurs and a Pigouvian tax of 120 will lead to an efficient outcome. |
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At the competitive equilibrium a deadweight loss of 792 occurs and a Pigouvian tax of 120 will lead to an efficient outcome. |
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None of the above. |
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