Problem
a) Assume that children and car seats have an estimated cross price elasticity of demand of -0.4. If there are 2.5 million children being born annually before the price of a car seat increases by 10%, what is the estimated number of children born annually after the change?
b) Assume there's a market with a negative externality introduced by the production of a good. Indicate the equilibrium price and quantity in this market along with the efficient quantity. Now introduce an efficient tax. Indicate the cost not borne by buyers or sellers in this market at the efficient quantity.