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?

Economics For Today

10th Edition

ISBN:9781337613040

Author:Tucker

Publisher:Tucker

Chapter14: Environmental Economics

Section: Chapter Questions

Problem 11SQ

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