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What is the equilibrium price and quantity

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Fireworks accidents continue to put a dark cloud over Independence Day celebrations. They seem to happen in about 1% of uses. The average cost of an accident is $1,000. The demand and supply curves for fireworks (exclusive of any accident or legal costs) are given below.

Demand                                                               Supply

Price               Quantity                                 Price               Quantity

$40                 100                                         $8                   100

$36                 200                                         $10                 200

$32                 300                                         $12                 300

$28                 400                                         $14                 400

$24                 500                                         $16                 500

$20                 600                                         $18                 400

$16                 700                                         $20                 500

$12                 800                                         $22                 600

1. Suppose that there is no liability for  accidents. What is the equilibrium price and quantity?

Price                          __________   Quantity                      __________ 

2. Suppose that suppliers are strictly liable for accidents. What is the equilibrium price and quantity?

Price                          __________  Quantity                     __________ 

3. Explain the Coase Theorem in this context. Draw a relevant diagram.

Reference no: EM132404678

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