Calculate private market equilibrium, Macroeconomics

Consider the following Marginal Private Cost (MPC), Marginal Social Cost (MSC) and market demand curves. These curves relate to a market for a product, the production of which generates a negative externality. Use these equations to answer the questions from a) to e). In answering questions a) to e) make sure that you also use a fully labelled and explained diagram.

MPC = 10 + 10Q

MSC = 10 + 12 Q

P = 70 - 5Q

a. What is the private market equilibrium P and Q?

b. What is the socially efficient equilibrium P and Q?

c. Explain in words why the equilibrium in a) is not efficient. Explain in words why the equilibrium in b) is efficient.

d. Calculate the deadweight loss from the negative externality in this scenario.

e. What is the size of the Pigovian Tax required to produce the efficient equilibrium? How much revenue would the government collect if it imposes this tax?

f. Explain in words how a system of marketable permits differs from the Pigovian Tax as a way to correct for the inefficiency associated with the negative externality. Why do economists tend to prefer a system of marketable permits over the Pigovian Tax? There is no need to use a diagram in your answer to f). 

Posted Date: 2/27/2013 7:36:46 AM | Location : United States







Related Discussions:- Calculate private market equilibrium, Assignment Help, Ask Question on Calculate private market equilibrium, Get Answer, Expert's Help, Calculate private market equilibrium Discussions

Write discussion on Calculate private market equilibrium
Your posts are moderated
Related Questions
There are a lot of mosquitoes in the island of Liholiho. Only two people live in this island, Robinson Crusoe and Man Friday. Their respective demand curves for mosquito control ar

Assume that there are only two inputs (labor and natural resources) producing two goods (movies and gasoline) with no improvement in society's technology over time. Further, assume

What are the 4 scarce, factors of production and what is a description of each of them. What are the costs to these resources?

Assume that when an economy has a GDP of $500, Consumption is $550. The MPC is .75. Investment is 25. Begin the problem by setting up an Income/Consumption Schedule like the one on

THE MODEL BUILDING    A model of individual or aggregate economic phenomena represents a simplification of real world economic complexities. It may be expressed in words, ta

Some charge that the Crisis of 2008 was caused by the "greed" of Wall Street firms and other bankers. Do you agree with this view? Do you think there was more greed on Wall Street

What are the pros and cons of outsourcing in order to keep prices down?


the difference between the AC and the AVC curve

Differences between absolute advantage and comparative advantage?              Ans) Absolute benefit and comparative benefit are two basic concepts to international trade. Under