The supply of paper is described by Qs=5000P where Qs is tons supplied per year and P is the price per ton. The demand is described by Qd=400,000-1000P where Qd is tons demanded per year. Because of the pollution associated with paper production, marginal external costs of $20 are associated with each ton of paper. a. Assuming that paper is sold in a competitive market with no regulation, what is the market price and quantity produced? b. Show and explain how can a corrective tax achieve efficiency? c. Assume a tax of $40 per ton is proposed. Would the proposed tax improve market efficiency (reduce deadweight loss)? Show and explain.
The supply of paper is described by Qs=5000P where Qs is tons supplied per year and P is the price per ton. The demand is described by Qd=400,000-1000P where Qd is tons demanded per year. Because of the pollution associated with paper production, marginal external costs of $20 are associated with each ton of paper. a. Assuming that paper is sold in a competitive market with no regulation, what is the market price and quantity produced? b. Show and explain how can a corrective tax achieve efficiency? c. Assume a tax of $40 per ton is proposed. Would the proposed tax improve market efficiency (reduce deadweight loss)? Show and explain.
Chapter1: Making Economics Decisions
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1. The supply of paper is described by Qs=5000P where Qs is tons supplied per year and P is the price per ton. The demand is described by Qd=400,000-1000P where Qd is tons demanded per year. Because of the pollution associated with paper production, marginal external costs of $20 are associated with each ton of paper.
a. Assuming that paper is sold in a competitive market with no regulation, what is the market price and quantity produced?
b. Show and explain how can a corrective tax achieve efficiency?
c. Assume a tax of $40 per ton is proposed. Would the proposed tax improve
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