You have the following supply and demand curves for an industry: QSX = -100 + 3 * PX for PX >= $40 QDX = 300 – 2 * PX However, this industry causes pollution damage to third parties. Each quantity produced creates pollution that causes equal damage, such that the marginal external cost is a constant $20 per unit (MEC= $20). a) Calculate the price quantity combinations for both the perfectly competitive and the efficient solution. Graphically show both solutions as well. Make sure you label all curves and axes. b) What efficient tax would move the competitive market to the efficient solution?
You have the following supply and demand curves for an industry: QSX = -100 + 3 * PX for PX >= $40 QDX = 300 – 2 * PX However, this industry causes pollution damage to third parties. Each quantity produced creates pollution that causes equal damage, such that the marginal external cost is a constant $20 per unit (MEC= $20). a) Calculate the price quantity combinations for both the perfectly competitive and the efficient solution. Graphically show both solutions as well. Make sure you label all curves and axes. b) What efficient tax would move the competitive market to the efficient solution?
Chapter14: Environmental Economics
Section: Chapter Questions
Problem 11SQ
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You have the following
QSX = -100 + 3 * PX
for PX >= $40
QDX = 300 – 2 * PX
However, this industry causes pollution damage to third parties. Each quantity produced creates pollution that causes equal damage, such that the marginal external cost is a constant $20 per unit (MEC= $20).
- a) Calculate the price quantity combinations for both the
perfectly competitive and the efficient solution. Graphically show both solutions as well. Make sure you label all curves and axes. - b) What efficient tax would move the competitive market to the efficient solution?
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