The production of a certain kind of hot sauce puts spicy capsaicin molecules inthe air, which can cause eye pain and damage to people who live near the factory.

Inverse demand and supply for this hot sauce are P = 30 — Q0 and P = 2QS, but each bottle of sauce causes 3 units of damage to others. Graph D, S, MSC, MSB, market quantity, and efficient quantity.

Gardeners produce a positive extemality, since people walking by the garden canenjoy the view. If inverse supply and demand for gardeners are P = 800 —2QDand P = 200 + 2QS, but the marginal social benefit of a gardener is MSB =1200 — 2Q:

a. Calculate the efficient quantity of gardeners.

b. Calculate the number of gardeners that would be produced in a competitivemarket.

c. Are your answers to a and b consistent with having a positive extemality?How do you know?