Consider a market with the following supply and demand.  (It may help to draw a graph for these questions.) P            5            6            7            8            9            10            11            12           13           14 QS        200       300        400       500        600        700         800          900        1000       1100 QD       800       750        700       650        600        550         500          450         400         350 If there is an external cost of $3, what is the efficient quantity? If there is an external benefit of $3, what is the efficient quantity? For the remaining questions assume that there is a $3 external COST. If the government wants to get the efficient quantity with a per/unit tax, how much should the tax be?

ENGR.ECONOMIC ANALYSIS
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Chapter1: Making Economics Decisions
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Consider a market with the following supply and demand.  (It may help to draw a graph for these questions.)

P            5            6            7            8            9            10            11            12           13           14

QS        200       300        400       500        600        700         800          900        1000       1100

QD       800       750        700       650        600        550         500          450         400         350

If there is an external cost of $3, what is the efficient quantity?

If there is an external benefit of $3, what is the efficient quantity?

For the remaining questions assume that there is a $3 external COST.

If the government wants to get the efficient quantity with a per/unit tax, how much should the tax be?

Now imagine that they use tradable allowances.  If they cap the quantity at 400 what would the value of these allowance be in the market?  (Assume the market is perfectly competitive and that "one allowance" lets you produce one unit of the good.) 13$ (wrong answer)

What will they be worth if the quantity is capped at 500? 11$ (wrong answer)

What if it is capped at 700? 7$ (wrong answer)

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