PS_1_ProblemSet - Environmental Economics AEM 451 ECON 409...

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Environmental Economics AEM 451 / ECON 409 Assignment #1 (Distributed Feb. 5, 2008; due by 2:55 p.m. on Tuesday, Feb. 12, 2008 in class) 1. This question asks you to consider the effect of a tax on social surplus. Assume that all of the conditions for markets to produce efficient allocations, on pages 116 and 124 of Perman et al, hold before the tax is applied. a. Label the lines in the graph below (two supply or marginal cost or marginal willingness-to-accept curves, one demand or marginal benefit or marginal willingness-to-pay curve, and the axes). You may turn in this sheet or a copy of it, or you may redraw the graph. b. Mark and label the distance that shows the magnitude of the tax per unit of good sold. c. Using the letters provided, what is the effect of the tax on each of the following: consumer surplus, producer surplus, government revenue, and total surplus? d. Using the letters provided, what is the deadweight loss from this tax?
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