Some dissenting scientists at Environment Canada disagree with the estimate of $1.50 for the environmental externality. They believe that the incidence of the externality is not constant across different levels of production; instead the size of the externality is proportional to the level of output. That is, the larger is the output, the larger is the externality. Their research suggests that the true social cost of cereal production diverges from private costs at every level of production by an amount equal to ten percent of production (note: ten percent, not ten percentage points). The government would like to know the economic effects of implementing a tax to internalise the externality in this case. Draw the diagram for this market and policy. Solve for all relevant Ps and Qs. Calculate producer surplus
. Some dissenting scientists at Environment Canada disagree with the estimate of $1.50 for the
environmental externality. They believe that the incidence of the externality is not constant across
different levels of production; instead the size of the externality is proportional to the level of output.
That is, the larger is the output, the larger is the externality. Their research suggests that the true
equal to ten percent of production (note: ten percent, not ten percentage points).
The government would like to know the economic effects of implementing a tax to internalise the
externality in this case. Draw the diagram for this market and policy. Solve for all relevant Ps and Qs.
Calculate
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