The accompanying table shows the marginal benefits and costs of paper production and consumption per week:

a. Based on these private costs and benefits, what will be the equilibrium price of paper?

b. Based on these private costs and benefits, what will be the equilibrium quantity of paper sold per week?

c. Are there likely to be negative externalities associated with paper production? If so, describe some of them. If not, why not?

d. Is the equilibrium quantity of paper sold per week the socially optimal quantity? Why or why not?

e. Suppose that an economist estimates that the negative externalities associated with paper production average $2.00 per box. She also concludes that there are no positive externalities associated with paper production. What is the socially optimal price of paper? What is the socially optimal quantity of paper sold per week?

f. Propose a method to get from the market equilibrium level of paper production to the socially optimal level of paper production.

Transcribed Image Text:

Quantity Produced/ Consumed (# boxes per week) 100 200 300 400 500 Private Marginal Costs (supply) 3 4 5 6 7 Private Marginal Benefits (demand) 7 6 5 4 3