The private marginal benefit associated with a product's consumption is PM B = 350 – 4Q and the private marginal cost associated with its production is PMC = 6Q. Furthermore, the marginal external damage associated with this good's production is MD = 4Q. To correct the externality, the government decides to impose a tax of T per unit sold. What tax T should it set to achieve the social optimum?

Exploring Economics
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ISBN:9781544336329
Author:Robert L. Sexton
Publisher:Robert L. Sexton
Chapter8: Market Failure
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Problem 2P: Draw a standard supply and demand diagram for televisions, and indicate the equilibrium price and...
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The private marginal benefit associated with a product's consumption is PM B = 350 – 4Q and the
private marginal cost associated with its production is PMC = 6Q. Furthermore, the marginal external
damage associated with this good's production is MD
4Q. To correct the externality, the
government decides to impose a tax of T per unit sold. What tax T should it set to achieve the social
optimum?
Transcribed Image Text:The private marginal benefit associated with a product's consumption is PM B = 350 – 4Q and the private marginal cost associated with its production is PMC = 6Q. Furthermore, the marginal external damage associated with this good's production is MD 4Q. To correct the externality, the government decides to impose a tax of T per unit sold. What tax T should it set to achieve the social optimum?
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