432review exam I

432review exam I - Westerhold Name Econ 432 Review Problems...

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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:
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(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).
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your graph showing your numbers. f) What is the value of the net gain to society from implementing the tax ($). Show this
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432review exam I - Westerhold Name Econ 432 Review Problems...

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