The production of fabric generates toxic effluents related to the dyes used. This is typically disposed of with wastewater, which generates pollution. If the government does not intervene, the market for fabric has an equilibrium price of $250 per roll and an equilibrium quantity of 10,000 rolls. a.How would the socially optimal quantity of fabric compare to the free market equilibrium quantity of 10,000 rolls? Why? b. Using a supply and demand graph show the effect on social welfare of allowing the market for fabric to operate without government intervention. Label all the curves and relevant points on your graph. c. Would a government subsidy or tax help the market achieve the social optimum? Explain. Show the necessary subsidy/tax on your graph. d. Explain how this intervention helps achieve the social optimum and what information would be necessary to implement it.
The production of fabric generates toxic effluents related to the dyes used. This is typically disposed of with wastewater, which generates pollution. If the government does not intervene, the market for fabric has an
a.How would the socially optimal quantity of fabric compare to the free
b. Using a supply and demand graph show the effect on social welfare of allowing the market for fabric to operate without government intervention. Label all the
c. Would a government subsidy or tax help the market achieve the social optimum? Explain. Show the necessary subsidy/tax on your graph.
d. Explain how this intervention helps achieve the social optimum and what information would be necessary to implement it.
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