Consider the market for cars, using the following assumptions: (i) The market is perfectly competitive; (ii) Demand for cars is given by Q = 13 - P/18, and supply is given by Q = P/8 -6 (you can think of prices in hundreds of dollars and quantities in millions if you like); (ii) each person who buys a car creates the same amount of pollution while owning their car, and the external cost of this pollution (i.e. not borne by car producers or consumers directly) is 7 per car, regardless of the overall quantity sold; and (iv) any externalities associated with the production of cars is negligible. The government imposes a tax or subsidy of the size that removes the deadweight loss entirely. In other words, a tax or a subsidy of a certain size would remove the deadweight loss, and to answer this question, you must figure out which (tax or subsidy) and how large it is. What price will be paid by consumers for a car, inclusive of the tax or subsidy?

Consider the market for cars, using the following assumptions: (i) The market is perfectly competitive; (ii) Demand for cars is given by Q = 13 - P/18, and supply is given by Q = P/8 -6 (you can think of prices in hundreds of dollars and quantities in millions if you like); (ii) each person who buys a car creates the same amount of pollution while owning their car, and the external cost of this pollution (i.e. not borne by car producers or consumers directly) is 7 per car, regardless of the overall quantity sold; and (iv) any externalities associated with the production of cars is negligible. The government imposes a tax or subsidy of the size that removes the deadweight loss entirely. In other words, a tax or a subsidy of a certain size would remove the deadweight loss, and to answer this question, you must figure out which (tax or subsidy) and how large it is. What price will be paid by consumers for a car, inclusive of the tax or subsidy?

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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