An important way to reduce the water pollution from the farms is to plant a buffer zone among the water and crops. Economist's estimate that for each bush there is a $20 gain in reduced the pollution. Demand and supply schedules for the bushes are given below.
Price Demand Supply
$50 1,000 5,000
$40 2,000 4,000
$30 3,000 3,000
$20 4,000 2,000
$10 5,000 1,000
a. Calculate the market clearing equilibrium price and quantity?
b. Determine the efficient quantity?
c. Discuss how would Pigou propose correcting this inefficiency?
d. Sketch a diagram illustrating your answer.