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In this plot we model a possible scenario for Australia's energy market. On the horiz axis we have the quantity of energy, and on the vertical axis its price. Pa Demand (private value) Pb Supply (private cost) Pc

In this plot we model a possible scenario for Australia's energy market. On the horiz axis we have the quantity of energy, and on the vertical axis its price. Pa Demand (private value) Pb Supply (private cost) Pc

Economics: Private and Public Choice (MindTap Course List)
Economics: Private and Public Choice (MindTap Course List)
16th Edition
ISBN:9781305506725
Author:James D. Gwartney, Richard L. Stroup, Russell S. Sobel, David A. Macpherson
Publisher:James D. Gwartney, Richard L. Stroup, Russell S. Sobel, David A. Macpherson
Chapter5: Difficult Cases For The Market And The Role Of Government
Section: Chapter Questions
Problem 10CQ
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In this plot we model a possible scenario for Australia's energy market. On the horizontal axis we have the quantity of energy, and on the vertical axis its price. Pa Demand (private value) Pb Supply (private cost) Pc Social Value Social Cost ---- Qа Qb Qc If there were no externalities the welfare maximizing quantity would be [ Select ] , while [ [ Select ] v would reflect the true benefit and cost to society. However, this model describes the presence of a [ Select ] externality in [ Select ] Therefore, the welfare maximizing quantity is [Select] and the deadweight loss is [ Select ] If the externality was fully internalized through a corrective tax equal to [ Select ] then the new market price would be [ Select ] the new market quantity would be [ Select ] V and society's welfare would be [ Select ] v without the corrective tax.
Transcribed Image Text:In this plot we model a possible scenario for Australia's energy market. On the horizontal axis we have the quantity of energy, and on the vertical axis its price. Pa Demand (private value) Pb Supply (private cost) Pc Social Value Social Cost ---- Qа Qb Qc If there were no externalities the welfare maximizing quantity would be [ Select ] , while [ [ Select ] v would reflect the true benefit and cost to society. However, this model describes the presence of a [ Select ] externality in [ Select ] Therefore, the welfare maximizing quantity is [Select] and the deadweight loss is [ Select ] If the externality was fully internalized through a corrective tax equal to [ Select ] then the new market price would be [ Select ] the new market quantity would be [ Select ] V and society's welfare would be [ Select ] v without the corrective tax.
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