432review exam I

432review exam I - Westerhold Name:_ Econ432

Info iconThis preview shows pages 1–4. Sign up to view the full content.

View Full Document Right Arrow Icon
Westerhold Name:_____________________________ Econ 432 Review Problems with Answers for Exam I 1. Negative Exernalities  Suppose the factory produces paper.  As a by-product of this paper production, they also  produce dangerous emissions of toxic gases.  The De-Lite car factory, down the road,  experiences a negative externality from this production process.  Suppose that the supply  curve (private marginal costs) for the paper factory is 5 + 2.5Qs and it faces a market  demand of Q d =15 -.5P or P=30-2Qd.  The marginal damages caused by the production of  paper can be written as MD=1/2Q   (a) Graph the MB, MPC, and MD curves for this market showing the y-intercept values:
Background image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
(b) Find the equilibrium price and quantity in the market for paper with no government  intervention in the market.  Round your quantity to the nearest whole number. Show your  work and indicate your equilibrium values on the graph above. (c) Find the socially optimal level of paper and the corresponding price. Round your quantity  to the nearest whole number. Show your work and indicate your socially efficient values  for price and quantity on the graph above. (d)  How much should the paper factory be taxed per unit of output? Show your work. Show  this on vertical distance on your graph (you could be off slightly due to rounding).
Background image of page 2
(e) What is the amount of tax revenue generated? Show your work and show this area on  your graph showing your numbers.
Background image of page 3

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Image of page 4
This is the end of the preview. Sign up to access the rest of the document.

This note was uploaded on 12/10/2010 for the course ECONOMICS 432 taught by Professor Jannett during the Spring '10 term at Brown.

Page1 / 10

432review exam I - Westerhold Name:_ Econ432

This preview shows document pages 1 - 4. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online