Suppose the market demand function (expressed in dollars) for a normal product is P = 100 – 2Q and the Supply Curve is P= 10 + Q, where P is the price of the product and Q is the quantity demanded or supplied. Assume that the Marginal External Cost curve is MEC = 5 + 0.5Q. Here are the specific questions: (show all of your calculations and draw the graph).
In a competitive market
What is the equilibrium price and quantity?
How much is the Consumer Surplus?
How much is Producer Surplus (P.S.)?
How is the total external cost (TEC)?
What the Total Welfare (sum of C.S. and P.S. minus TEC)?
In perfect world,
What is the efficient output and price?
How much is the Consumer Surplus?
How much is Producer Surplus (P.S.)?
How is the total external cost (TEC)?
How much tax revenue is collected?
What the Total Welfare (sum of C.S. and P.S. minus TEC plus Tax Revenue)?