Consider a competitive market for the paper-making industry. The demand curve for paper is represented by the equation P = 120 – 2Q, while supply is represented by the equation P = 60 + Q, where Q is the quantity of paper (measured in tons) and P is the price of paper per ton for each paper mill (measured in dollars). Suppose the industry pollutes the environment by discharging waste chemicals that present a health risk to the public. a) What is the equilibrium price and quantity in the competitive market? b) Suppose the government determines that the social cost of unregulated paper-making activity is $30 per ton of paper. The government decides to internalise this activity through imposing the appropriate per unit tax on paper mills. What would be the socially optimal quantity of paper, and what would be the price for each paper mill?
Consider a competitive market for the paper-making industry. The demand curve for paper is represented by the equation P = 120 – 2Q, while supply is represented by the equation P = 60 + Q, where Q is the quantity of paper (measured in tons) and P is the price of paper per ton for each paper mill (measured in dollars). Suppose the industry pollutes the environment by discharging waste chemicals that present a health risk to the public.
a) What is the
b) Suppose the government determines that the
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