Answered: 1. Suggest a relevant government policy…

Essentials of Economics (MindTap Course List)

8th Edition

ISBN:9781337091992

Author:N. Gregory Mankiw

Publisher:N. Gregory Mankiw

Chapter10: Externalities

Section: Chapter Questions

Problem 3CQQ

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1. Suggest a relevant government policy (dealing with Water Pollution) that would yield the efficient outcome and carefully explain the process through which the implementation of the government policy will lead to the optimal outcome. (Maximum 30 words)

a. How will the imposition of the chosen government policy impact consumer surplus, producer surplus and total surplus in this scenario? (Maximum 30 words)

Definition Definition Consumer surplus is the consumers' gain from trade. The consumer surplus is the area below the demand curve but above the equilibrium price, up to the equilibrium quantity. Producer surplus is the producer's gain from trade. The producer surplus is the area above the supply curve but below the equilibrium price, up to the equilibrium quantity. Consumer surplus is represented by Area A and producer surplus is represented by Area B.

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