n the market for petroleum products the inverse private supply and demand are represented by: Supply: P = 10.0 + 0.075Q Demand: P = 42.0 – 0.125Q The production of petroleum causes pollution which has the following cost: E = 0.05Q What is the market outcome in terms of Price and Quantity? Calculate and then illustrate on a large graph (you’ll use the graph throughout the question). What is the socially efficient outcome in terms of Price and Quantity? Calculate and then illustrate on the same graph you used for part a. What is the deadweight loss to society when it is at the market outcome? Calculate and then illustrate on the same graph you used for part a.
In the market for petroleum products the inverse private supply and demand are represented by:
Supply: P = 10.0 + 0.075Q
Demand: P = 42.0 – 0.125Q
The production of petroleum causes pollution which has the following cost:
E = 0.05Q
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What is the market outcome in terms of Price and Quantity? Calculate and then illustrate on a large graph (you’ll use the graph throughout the question).
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What is the socially efficient outcome in terms of Price and Quantity? Calculate and then illustrate on the same graph you used for part a.
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What is the
deadweight loss to society when it is at the market outcome? Calculate and then illustrate on the same graph you used for part a. -
What tax should be put on this market in order to move it to the efficient solution? Be sure to clearly indicate the monetary value of the tax and what it is put on.
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After the tax is placed, what price does the consumer in this market see? What price does the supplier see? How much revenue does the government receive?
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Does putting the tax on the market create any deadweight loss in the market? Why or why not?
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