Suppose the supply curve of a product is given by P = 5 + 0.1Q, where P is the daily rent per unit in dollars and Q is the quantity. The demand curve for the product is 20 – 0.2Q. (i)If the production of each unit of the product imposes $3 per day in externalcosts on others, by how much will the equilibrium number of the productexceed the socially optimal number? (ii)How would the imposition of a tax of $3 per unit on each product affect efficiency in this market?

Economics For Today
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Chapter14: Environmental Economics
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Suppose the supply curve of a product is given by P = 5 + 0.1Q, where P is the daily rent per unit in dollars and Q is the quantity. The demand curve for the product is 20 – 0.2Q.

(i)If the production of each unit of the product imposes $3 per day in externalcosts on others, by how much will the equilibrium number of the productexceed the socially optimal number?

(ii)How would the imposition of a tax of $3 per unit on each product affect efficiency in this market?

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