1.The many identical residents of Whoville love drinking Zlurp. Each resident has the following willingness to pay for the tasty refreshment:

First bottle $5

Second bottle 4

Third bottle 3

Fourth bottle 2

Fifth bottle 1

Further bottles 0

a. The cost of producing Zlurp is $1.50, and the competitive suppliers sell it at this price. (The supply curve is horizontal.) How many bottles will each Whovillian consume? What is each person's consumer surplus?

b. Producing Zlurp creates pollution. Each bottle has an external cost of $1. Taking this additional cost into account, what is total surplus per person in the allocation you described in part (a)?

c. Cindy Lou Who, one of the residents of Whoville, decides on her own to reduce her consumption of Zlurp by one bottle. What happens to Cindy's welfare (her consumer surplus minus the cost of pollution she experiences)? How does Cindy's decision affect total surplus in Whoville?

d. Mayor Grinch imposes a $1 tax on Zlurp. What is consumption per person now? Calculate consumer surplus, the external cost, government revenue, and total surplus per person.

e. Based on your calculations, would you support the mayor's policy? Why or why not?

(Please instruct me how to draw a graph properly)

2.Do you agree with the following statements? Why or why not?

a. "The benefits of corrective taxes as a way to reduce pollution have to be weighed against the deadweight losses that these taxes cause."

b. "When deciding whether to levy a corrective tax on consumers or producers, the government should be careful to levy the tax on the side of the market generating the externality."

3.A local drama company proposes a new neighborhood theater in San Francisco. Before approving the building permit, the city planner completes a study of the theater's impact on the surrounding community.

a. One finding of the study is that theaters attract traffic, which adversely affects the community. The city planner estimates that the cost to the community from the extra traffic is $5 per ticket. What kind of an externality is this? Why?

b. Graph the market for theater tickets, labeling the demand curve, the social-value curve, the supply curve, the social-cost curve, the market equilibrium level of output, and theefficient level of output. Also show the per-unit amount of the externality

c. Upon further review, the city planner uncovers a second externality. Rehearsals for the plays tend to run until late at night, with actors, stagehands, and other theater members coming and going at various hours. The planner has found that the increased foot traffic improves the safety of the surrounding streets, an estimated benefit to the community of $2 per ticket. What kind of externality is this? Why?

d. On a new graph, illustrate the market for theater tickets in the case of these two externalities. Again, label the demand curve, the social-value curve, the supply curve, the social-cost curve, the market equilibrium level of output, the efficient level of output, and the per-unit amount of both externalities.

e. Describe a government policy that would result in an efficient outcome

4.