Consider the market for charcoal briquettes in a small neighborhood. Neighborhoods residents buy charcoal briquettes to grill food. Their demand curve is given by ?? =110−4??. Charcoal briquettes are sold by several local stores. Their supply curve is given by ?? = 10+??. When people grill food, they fill their neighborhood with wonderful barbeque smells that are appealing to all residents. The value of this external benefit is $5 for every bag of charcoal briquettes sold. a.) Solve for the competitive equilibrium in the market for charcoal briquettes. b.) Compute consumer surplus, producer surplus, and total surplus in this equilibrium. c.) Solve for the socially optimal quantity of bags of charcoal briquettes. d.) Give an example of a command and control policy the neighborhood government could use to implement this socially efficient quantity. e.) Suppose the neighborhood government decides to implement the socially optimal quantity with a Pigouvian subsidy. Compute consumer surplus, producer surplus, government surplus, and total surplus with the subsidy. f.) Compute the dead weight loss
Consider the market for charcoal briquettes in a small neighborhood. Neighborhoods residents buy
charcoal briquettes to grill food. Their demand curve is given by ?? =110−4??. Charcoal briquettes
are sold by several local stores. Their supply curve is given by ?? = 10+??. When people grill food,
they fill their neighborhood with wonderful barbeque smells that are appealing to all residents. The value
of this external benefit is $5 for every bag of charcoal briquettes sold.
a.) Solve for the competitive equilibrium in the market for charcoal briquettes.
b.) Compute
c.) Solve for the socially optimal quantity of bags of charcoal briquettes.
d.) Give an example of a command and control policy the neighborhood government could use to
implement this socially efficient quantity.
e.) Suppose the neighborhood government decides to implement the socially optimal quantity with a
Pigouvian subsidy. Compute consumer surplus, producer surplus, government surplus, and total
surplus with the subsidy.
f.) Compute the dead weight loss of allowing the market to operate without government intervention.
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