The market for a particular chemical, called Dexzon, is described by the following equations: • Demand: QD = 100 – 5P • Supply: QS = 5P where Q is measured in ounces of Dexzon and P is price in dollars per ounce. For each ounce of Dexzon produced, 1 unit of pollution is released into the environment. The external cost of the pollution is estimated to be $4 per ounce of Dexzon produced. a) Draw a diagram to illustrate the market for Dexzon described above. On your diagram, clearly indicate the market equilibrium, the efficient equilibrium and the price and quantity at each of these equilibria. b) On your diagram in a), shade the area that corresponds to the deadweight loss. c) Compute consumer surplus, producer surplus and total surplus both in the market equilibrium and in the efficient equilibrium. What is the size of the deadweight loss?
The market for a particular chemical, called Dexzon, is described by the following equations: •
a) Draw a diagram to illustrate the market for Dexzon described above. On your diagram, clearly indicate the
b) On your diagram in a), shade the area that corresponds to the
c) Compute
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