homework6spring2011

Aftertestingallofthepsychicsthat

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Unformatted text preview: l
be
produced?
 
 
 
 
 1
 3.

 Externalities:
On
Aloha
Island,
the
supply
of
widgets
is
given
by
P=30‐Q
and
the
 demand
for
widgets
is
given
by
P=Q.
It
is
estimated
that
for
every
widget
that’s
 produced,
the
factory
creates
enough
pollution
to
cost
the
local
fishing
industry
 $2.

 
 a.

 What
is
the
market
equilibrium
without
regulation?
 b.


 What
is
the
equation
for
the
Marginal
Social
Cost
curve?
Use
this
to
figure
 out
what
the
socially
optimal
amount
of
widgets
is.
Is
the
socially
optimal
 the
same
amount
as
you
found
in
part
(a)?
 c.

 The
government
could
achieve
the
outcome
in
(b)
by
charging
a
 “pollution
tax”
on
each
widget
produced
equal
to
$2.
What
would
be
the
 deadweight
loss
if
the
government
did
not
do
this?
(Hint:
draw
a
graph
 with
the
unregulated
market
suppl...
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This note was uploaded on 12/04/2013 for the course ECONOMICS 101 taught by Professor Kelly during the Spring '10 term at Wisconsin.

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