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(12. Market supply and demand for insecticide are given lav the following equations: Supply: Eta =1DP 100 Demand: u =1,100 - 2UP There is a
(12. Market supply and demand for insecticide are given lav the following equations: Supply: Eta =1DP 100 Demand: u =1,100 - 2UP There is a negative externalitv associated with this market. Toxic wastes generated by the production process of this good pollute sources of water. This damage has been estimated at $15 per unit produced. [a] In order to eliminate the deadweight loss created by the negative externalitv, should the government intervene by implementing a tax or a subsidv? What should be the amount {per unit) of such tax or subsidy? The government should tax $15 per unit [[1] If the government does not intervene, calculate consumer surplus, producer surplus, government revenue, external cost, total surplus and deadvveight loss. (c) If the government implements the policy described in part (a), calculate consumer surplus, producer surplus, government revenue, external cost, total surplus and deadweight loss. No intervention 2(b) $15 per unit tax on firms 2(c) CS $2,250 $1,000 PS $4,500 $2,000 GR $0 $3,000 EC -$4,500 -$3,000 TS $2,250 $3,000 DWL $750 $0
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