The production of natural gas by hydraulic fracturing ("fracking") causes a variety of environment problems including frequent earthquakes. The diagram below represents the market for natural Kansas. P 15 MSC 14 13 12 11 10 S/ MPC 9 8 7 6. D/MPB 3 2 1 1 2 3 4 6 7 8. 9 10 a.) Based on the diagram, how big is the marginal externality from fracking? $ b.)Fill in the welfare table below and then use it to answer the following questions. Free market (no tax) Market w/ optimal tax CS PS externality tax revenue social surplus c.) How much higher is social surplus with the optimal corrective tax compared to without? $ d.) What is the DWL associated with the free market outcome (i.e. when there is no tax)? 5 4.

ENGR.ECONOMIC ANALYSIS
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Chapter1: Making Economics Decisions
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The production of natural gas by hydraulic fracturing ("fracking") causes a variety of environmental
problems including frequent earthquakes. The diagram below represents the market for natural gas in
Kansas.
P 15
MSC
14
13
12
11
10
S/ MPC
9.
8
7
6
5
4
D/MPB
3
2
1
1
2
4
6
7
8
9.
10
a.) Based on the diagram, how big is the marginal externality from fracking? $
b.)Fill in the welfare table below and then use it to answer the following questions.
Free market (no tax)
Market w/ optimal tax
CS
PS
externality
tax revenue
social surplus
c.) How much higher is social surplus with the optimal corrective tax compared to without? $.
d.) What is the DWL associated with the free market outcome (i.e. when there is no tax)?
Transcribed Image Text:The production of natural gas by hydraulic fracturing ("fracking") causes a variety of environmental problems including frequent earthquakes. The diagram below represents the market for natural gas in Kansas. P 15 MSC 14 13 12 11 10 S/ MPC 9. 8 7 6 5 4 D/MPB 3 2 1 1 2 4 6 7 8 9. 10 a.) Based on the diagram, how big is the marginal externality from fracking? $ b.)Fill in the welfare table below and then use it to answer the following questions. Free market (no tax) Market w/ optimal tax CS PS externality tax revenue social surplus c.) How much higher is social surplus with the optimal corrective tax compared to without? $. d.) What is the DWL associated with the free market outcome (i.e. when there is no tax)?
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