The marginal private cost of mulch production is MPC = 20 + 3Q, where Q is the amount of mulch produced. The marginal benefit (both private and social) of mulch is MB = 100 – Q. In addition to the private costs faced by producers of mulch, people who walk or drive past the area where the mulch is produced also face costs because of the horrible smell of the mulch; the marginal external cost generated by the mulch is MEC = 10 + Q. How much mulch will be produced by the free market? What is the efficient quantity of mulch? Calculate the amount of deadweight loss in this market, and clearly explain what this number means. Suppose that the government realizes that the current amount of mulch produced by the free market is inefficient, and decides to correct this inefficiency by taxing the production of mulch. How large should the tax per unit of mulch be to induce the market to produce the efficient amount, and why would such a tax accomplish the goal of making the market operate efficiently?

Marginal private cost (MPC) = 20 + 3Q Marginal benefit (MB) = 100 – Q Marginal external cost (MEC) =…

Answered: The marginal private cost of mulch…

Exploring Economics

8th Edition

ISBN:9781544336329

Author:Robert L. Sexton

Publisher:Robert L. Sexton

Chapter8: Market Failure

Section: Chapter Questions

Problem 2P: Draw a standard supply and demand diagram for televisions, and indicate the equilibrium price and...

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The marginal private cost of mulch production is MPC = 20 + 3Q, where Q is the amount of mulch produced. The marginal benefit (both private and social) of mulch is MB = 100 – Q. In addition to the private costs faced by producers of mulch, people who walk or drive past the area where the mulch is produced also face costs because of the horrible smell of the mulch; the marginal external cost generated by the mulch is MEC = 10 + Q.

How much mulch will be produced by the free market?
What is the efficient quantity of mulch?
Calculate the amount of deadweight loss in this market, and clearly explain what this number means.
Suppose that the government realizes that the current amount of mulch produced by the free market is inefficient, and decides to correct this inefficiency by taxing the production of mulch. How large should the tax per unit of mulch be to induce the market to produce the efficient amount, and why would such a tax accomplish the goal of making the market operate efficiently?

Definition Definition Degree to which financial markets incorporate all available information into the prices of assets. In a more efficient market, the prices reflect the available information more than that in a weak efficient market. It is difficult for investors to outperform the market in a strong efficient market. This is because all the available information is already discounted in the asset's price. However, in a weak-form efficiency, the market does not reflect all information in the asset's price. As a result, it becomes easier to generate better returns in a weak form or an inefficient market.

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