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SQ3_ExternalitiesAK(1)

# B how would the imposition of a tax of 6 on each jet

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Unformatted text preview: y will get \$600 a day if they have the right to stop The Lakeside Café from dumping garbage, but they will get less than this if the Lakeside Café has the right to dump garbage because Camp Canoe would have to pay them to stop. 4. Suppose the supply curve for jet ski rentals on Mission Bay is given by P=2+0.1Q, where P is the daily rental fee per jet ski in dollars and Q is the number of jet skis rented each day. The demand curve for jet skis is given by P=20 ­0.2Q. a. If each jet ski imposes a \$6 per day cost on others (because they are so noisy), by how much will the equilibrium number of jet skis rented each day exceed the socially optimal number? b. How would the imposition of a tax of \$6 on each jet ski rental affect efficiency in this market? a. The market equilibrium will occur where 2+0.1Q=20 ­0.2Q => 0.3Q=18 => Q*=60. The socially optimal quantity occurs where 8+0.1Q=20 ­ 0.2Q => 0.3Q=12 => QS=40. So the equilibrium number of jet skis exceeds the social optimum by 20. b. This would lead to th...
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