AEM 2500 homework 3 externalities f

# AEM 2500 homework 3 externalities f - AEM 2500 -...

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AEM 2500 - Environmental and Resource Economics, 2010 Homework 3 – Market Failure (Externalities) Distributed Sept. 17, 2010, due in the Red Box outside of Warren 102 by 9:30 a.m. Sept. 24, 2010. (Note: If you are having problems with some of the answers, you are advised to peruse the relevant gobbets on the course web site) 10 Points. All graphs should be clearly labeled and all other work legible. If we are unable to interpret your work, you will receive a lower score. 1. (2 points) In environmental policy discussions you will often hear people refer to taxes on pollution as the “polluter pays principle.” In this question, we explore whether a tax on the polluter is borne entirely by the polluter or not. Suppose that you had a supply curve for the production of “Long Island” potatoes* given by: Q S = P where Q S is measured in millions of pounds of potatoes per month and P is the price per pound of potatoes. Let the demand, also measured in millions of pounds, for these potatoes be represented as follows. Q D = 6 - P a. Graph these supply and demand curves and numerically solve for and indicate on the graph the equilibrium price and quantity. b. Suppose a tax of \$1/pound was collected from potato producers. Indicate the effect of the tax on your graph along with the new equilibrium price and quantity. Also indicate on the graph the deadweight loss associated with the tax (you do not need to solve this

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## This note was uploaded on 12/20/2010 for the course AEM 25 at Cornell.

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AEM 2500 homework 3 externalities f - AEM 2500 -...

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