Related questions
Consider a market with the following supply and demand. (It may help to draw a graph for these questions.)
P 5 6 7 8 9 10 11 12 13 14
QS 200 300 400 500 600 700 800 900 1000 1100
QD 800 750 700 650 600 550 500 450 400 350
If there is an external cost of $3, what is the efficient quantity? 500 (already answer)
If there is an external benefit of $3, what is the efficient quantity? 700 (already answer)
For the remaining questions assume that there is a $3 external COST.
If the government wants to get the efficient quantity with a per/unit tax, how much should the tax be? 3 (already answer)
Now imagine that they use tradable allowances. If they cap the quantity at 400 what would the value of these allowance be in the market? (Assume the market is
What will they be worth if the quantity is capped at 500?
What if it is capped at 700?
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- A consumer's utility only depends on the consumption of goods A and B according to the following Cobb - Douglas utility function: U(A, B) = A3/5 B 2/5. The price of goods A and B are $10 and $10, respectively. The consumer has a budget of $1500 that he can use to consume the two goods. a) Calculate the optimal bundle and maximized utility for the consumer. b) A new tax of $5 is imposed on the price of good B. Compute the new optimal bundle of good A and B for the same consumer. What is the utility loss due to the tax? c) Show that the consumer would prefer a lump sum income tax that raises the same revenue of $200 as the tax on good B.arrow_forwardConsider the following duopoly model and determine profit - maximizing output and price for q_1+ q 2 TC_1 = 10 q_(1) TC_2 = 10 q_2 each firm. P = 200 - Q Industry Demand Q =arrow_forward
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