Question
1. Suppose the market for oranges is perfectly competitive and unregulated. Suppose also that the chemicals used to keep the oranges insect-free damage the environment
1. Suppose the market for oranges is perfectly competitive and unregulated. Suppose also that the chemicals used to keep the oranges insect-free damage the environment by an estimated $1 per bushel of oranges. Suppose QD = 1000 - 100P and QS = -100 + 100P. Calculate the market equilibrium quantity.
2. Calculate the price consumers would have to pay for the market to achieve the socially optimal level of production. [Hint: use QS = QS + tax but firms will receive a price P - t, therefore, QS = -100 + 100 (P-1). Find new equilibrium price]
3. Calculate the market equilibrium quantity.
4. Calculate the tax revenue collected by the government
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