5) Suppose: i) the price of gasoline is $2 per gallon ii) current consumption is 400 (million) gallons per day iii) the elasticity of demand is -0.8 iv) retail provision of gasoline may be approximated as a constant cost industry v) there is an external cost of $0.5 per gallon of gas. Calculate deadweight loss associated with the externality. Draw a figure to illustrate.
5) Suppose: i) the price of gasoline is $2 per gallon ii) current consumption is 400 (million) gallons per day iii) the elasticity of demand is -0.8 iv) retail provision of gasoline may be approximated as a constant cost industry v) there is an external cost of $0.5 per gallon of gas. Calculate deadweight loss associated with the externality. Draw a figure to illustrate.
Economics (MindTap Course List)
13th Edition
ISBN:9781337617383
Author:Roger A. Arnold
Publisher:Roger A. Arnold
Chapter30: Market Failure: Externalities, Public Goods, And Asymmetric Information
Section: Chapter Questions
Problem 8QP
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