What is the socially optimal level of consumption of good

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Reference no: EM13860121

1. Suppose that demand for a product is given by Q=1000-P. Supply of the product is given by Q=2P. There is a positive consumption externality from this product, in the amount of $5 per unit.

a. Draw the market for this good, labeling the private marginal cost (PMC), social marginal cost (SMC), private marginal benefit (PMB) and social marginal benefit (SMB) curves. (If private and social marginal costs or benefits are equal, indicate this)

b. What quantity of the good is consumed under the private market equilibrium?

c. What is the socially optimal level of consumption of the good?

d. What is the deadweight loss resulting from this externality?

Reference no: EM13860121

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