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Gobbet 8 - Externalities

Gobbet 8 - Externalities - bottle causes Graphically show...

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Gobbet #8: Externalities (These problems are adapted from Callan and Thomas: Environmental Economics and Management , 2004) Recall the demand and supply schedules for the bottled water market. PRICE (P) Quantity Demanded by Consumers (bottles/month) Quantity Supplied by Producers (bottles/month) $0.50 1,100 100 1.00 1,050 300 1.50 1,000 500 2.00 950 700 2.50 900 900 3.00 850 1,100 3.50 800 1,300 4.00 750 1,500 4.50 700 1,700 5.00 650 1,900 Now assume that the bottles in which the water is sold are creating pollution. In fact, for each discarded water bottle, society would have to pay $1.00 to abate the pollution the
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Unformatted text preview: bottle causes. Graphically show the marginal cost curve and the social marginal cost curve. Find the equation that corresponds with the social marginal cost curve. (Remember that the marginal cost curve is also called the inverse supply curve.) Determine the socially optimal price and quantity for bottled water, and depict this in a graph. Determine the amount of net benefit to society at the new equilibrium. Determine the amount of deadweight loss society experiences at the old equilibrium, and show this graphically....
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