Answered: Suppose the supply curve of a product…

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Question

Suppose the supply curve of a product is given by P = 5 + 0.1Q, where P is the

daily rent per unit in dollars and Q is the quantity. The demand curve for the

product is 20 – 0.2Q.

(i)If the production of each unit of the product imposes $3 per day in external

costs on others, by how much will the equilibrium number of the product

exceed the socially optimal number?

(ii) How would the imposition of a tax of $3 per unit on each product affect

efficiency in this market?

Definition Definition Degree to which financial markets incorporate all available information into the prices of assets. In a more efficient market, the prices reflect the available information more than that in a weak efficient market. It is difficult for investors to outperform the market in a strong efficient market. This is because all the available information is already discounted in the asset's price. However, in a weak-form efficiency, the market does not reflect all information in the asset's price. As a result, it becomes easier to generate better returns in a weak form or an inefficient market.

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