Question 2 The market demand for Good X, and the market supply of Good X, are described by the following two equations respectively, Qo=110-2P and Qs = 40 + 4P. Good X can only be produced with some pollutant; the negative effect of pollutant from each unit of Good X is estimated to be $3. a. b. C. d. Find the market equilibrium (i.e., the equilibrium price and quantity) of Good X first. Then, calculate the consumer surplus (CS), the producer surplus (PS), the externality, and the total surplus (TS) of the market equilibrium. (A diagram of the demand and supply will be helpful for you.) Is the market equilibrium shown above efficient? If not, how much is the highest possible amount of total surplus, and how much is the dead-weight loss? Show calculations. (Hint, you need the equations for the social value and social cost to answer these.) Describe how to internalize the externality to achieve the efficient market outcome, i.e. that with the highest total surplus as calculated above. Specify the equations for the market demand and market supply in achieving the efficient market outcome. For another good, Good Y, the market demand and market supply are exactly the same as those of Good X. But Good Y has an external benefit, of $3 per unit. How much are the CS, PS, and TS in the market equilibrium for Good Y?
Question 2 The market demand for Good X, and the market supply of Good X, are described by the following two equations respectively, Qo=110-2P and Qs = 40 + 4P. Good X can only be produced with some pollutant; the negative effect of pollutant from each unit of Good X is estimated to be $3. a. b. C. d. Find the market equilibrium (i.e., the equilibrium price and quantity) of Good X first. Then, calculate the consumer surplus (CS), the producer surplus (PS), the externality, and the total surplus (TS) of the market equilibrium. (A diagram of the demand and supply will be helpful for you.) Is the market equilibrium shown above efficient? If not, how much is the highest possible amount of total surplus, and how much is the dead-weight loss? Show calculations. (Hint, you need the equations for the social value and social cost to answer these.) Describe how to internalize the externality to achieve the efficient market outcome, i.e. that with the highest total surplus as calculated above. Specify the equations for the market demand and market supply in achieving the efficient market outcome. For another good, Good Y, the market demand and market supply are exactly the same as those of Good X. But Good Y has an external benefit, of $3 per unit. How much are the CS, PS, and TS in the market equilibrium for Good Y?
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Transcribed Image Text:Question 2
The market demand for Good X, and the market supply of Good X, are described by
the following two equations respectively, Qo=110-2P and Qs = 40 + 4P. Good X
can only be produced with some pollutant; the negative effect of pollutant from each
unit of Good X is estimated to be $3.
a.
b.
c.
d.
Find the market equilibrium (i.e., the equilibrium price and quantity) of
Good X first. Then, calculate the consumer surplus (CS), the producer surplus (PS),
the externality, and the total surplus (TS) of the market equilibrium. (A diagram of
the demand and supply will be helpful for you.)
Is the market equilibrium shown above efficient? If not, how much is the
highest possible amount of total surplus, and how much is the dead-weight loss?
Sh calculations. (Hint, you need the equations for the social value and social
cost to answer these.)
Describe how to internalize the externality to achieve the efficient market
outcome, i.e. that with the highest total surplus as calculated above. Specify the
equations for the market demand and market supply in achieving the efficient
market outcome.
For another good, Good Y, the market demand and market supply are
exactly the same as those of Good X. But Good Y has an external benefit, of $3 per
unit. How much are the CS, PS, and TS in the market equilibrium for Good Y?
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