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Unformatted text preview: Note: the private traders gain surplus of $2 by going from 3 units to 5, but the kids are worse off having incurred pollution costs of $4 so there is a net $2 loss if the externality is ignored. d) Set a tax per unit of $2 and collect from suppliers and you will bump up MCprivate by $2, so that now it equals $7. So set MBprivate = MCprivate + tax and you would get X=3, the Pareto efficient level. e) No, the private traders are worse off having lost surplus of $2. But note that the kids are better off having saved pollution costs of $4 so there is a net $2 gain! f) Government revenue is $6. UPF 50 100 150 200 250 100 200 300 uAbe uBetty note slope=-.5 note slope = -1 helping line S T Econ 313 - Wissink - Fall 2005 ANSWERS...
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- Fall '06