What is the shadow price of the output

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Reference no: EM131109493

Assume that a competitive market has an upward-sloping supply curve and a downwardsloping demand curve, both of which are linear. A tax of $0.10 per unit is currently imposed in the market. Suppose that with the tax the equilibrium quantity is 70,000 units. Now suppose a government project purchases 5,000 units of output from this market, causing its equilibrium price to rise from $1.10 to $1.20 per unit. Further suppose that of the total units purchased, 3,000 units purchased for the government project comes from displaced demand. a. Use Method (1) to measure the net social welfare change that results from the government project (give numerical values for ΔTB, ΔTC and ΔNSW). b. Use the Quick-and Dirty Method to measure the net social welfare change that results from the government project. c. What is the shadow price of the output?

Reference no: EM131109493

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