The figure below shows the market for a chemical, of which the production causes certain negative externalities in the form of pollution. Define MCP = marginal private cost, MCS = marginal social cost, D = market demand, P = price, and Q = quantity. (a) If the market is competitive, what is the equilibrium price and quantity? (b) Is this equilibrium outcome socially optimal? (c) In terms of the areas denoted by A, B, and C, what is the deadweight loss to society if the market is competitive? (d) What can the government do to achieve the socially optimal level of pollution?
The figure below shows the market for a chemical, of which the production causes certain negative externalities in the form of pollution. Define MCP = marginal private cost, MCS = marginal social cost, D = market demand, P = price, and Q = quantity. (a) If the market is competitive, what is the equilibrium price and quantity? (b) Is this equilibrium outcome socially optimal? (c) In terms of the areas denoted by A, B, and C, what is the deadweight loss to society if the market is competitive? (d) What can the government do to achieve the socially optimal level of pollution?
Chapter1: Making Economics Decisions
Section: Chapter Questions
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The figure below shows the market for a chemical, of which the production
causes certain negative externalities in the form of pollution. Define MCP =
marginal private cost, MCS = marginal
price, and Q = quantity.
(a) If the market is competitive, what is the
(b) Is this equilibrium outcome socially optimal?
(c) In terms of the areas denoted by A, B, and C, what is the
loss
(d) What can the government do to achieve the socially optimal level of
pollution?
Transcribed Image Text:a
25
20
15
10
A
100
B
C
MC₂
200
MC₂
D
Q
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