ps1 - Department of Agricultural and Resource Economics...

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Department of Agricultural and Resource Economics EEP 101/ECON 125 University of California at Berkeley David Zilberman PROBLEM SET 1 1. The inverse demand for chemicals PQ =- 100 2 , where P is the price in dollars and Q is the quantity. The marginal private cost of the chemical industry is 10 + 2 Q , and the marginal externality cost is 10 + Q . Solve this problem algebraically using the appropriate graphs. a. What will be the socially optimal level of output taking the externality into consideration? What will be the price? b. Suppose a tax is used to attain the social optimum. i. Compute the optimal tax. ii. What will be the distribution of social welfare among consumers, producers, the environment, and government after the tax? c. i. What will be the competitive price and quantity when pollution is not regulated? ii. What will be the distribution of social welfare among consumers, producers, and the environment? d. i. Using the results in the previous sections, how will taxation of pollution affect welfare of the various groups?
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ps1 - Department of Agricultural and Resource Economics...

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