Question 1 The market (inverse) supply and demand functions for fish are given by: pD = 50 – QD ps = 4+2Q$ (a) Find the free market equilibrium quantity and price of fish. Excessive fishing depletes the stock of fish in rivers and lakes, imposing an external cost on people who enjoy

Exploring Economics
8th Edition
ISBN:9781544336329
Author:Robert L. Sexton
Publisher:Robert L. Sexton
Chapter8: Market Failure
Section: Chapter Questions
Problem 2P: Draw a standard supply and demand diagram for televisions, and indicate the equilibrium price and...
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Question 1
The market (inverse) supply and demand functions for fish are given by:
pD = 50 – Q"
p$ = 4+ 2Q$
(a) Find the free market equilibrium quantity and price of fish.
Excessive fishing depletes the stock of fish in rivers and lakes, imposing an external cost on people who enjoy
recreational fishing. This external cost is larger when the quantity of commercial fishing is greater. Assume
that:
EC = Q
(b) Write down the equation for the Social Marginal Cost in this market, as a function of Q.
(c) Find the socially optimal quantity of fish that should be produced (QB).
(d) What size of a unit tax on (commercially-harvested) fish would make QB the equilibrium quantity?
Transcribed Image Text:Question 1 The market (inverse) supply and demand functions for fish are given by: pD = 50 – Q" p$ = 4+ 2Q$ (a) Find the free market equilibrium quantity and price of fish. Excessive fishing depletes the stock of fish in rivers and lakes, imposing an external cost on people who enjoy recreational fishing. This external cost is larger when the quantity of commercial fishing is greater. Assume that: EC = Q (b) Write down the equation for the Social Marginal Cost in this market, as a function of Q. (c) Find the socially optimal quantity of fish that should be produced (QB). (d) What size of a unit tax on (commercially-harvested) fish would make QB the equilibrium quantity?
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