(2) Suppose the inverse demand and supply curves for Coca Cola are given by = 60 2 and = . There is . 001 chance that a can of Coke will explode, causing $30,000 in damages.

(a) If there is no liability, what will be the market clearing price and quantity? If there is a strict liability rule, what will be the market clearing price and quantity? What is the difference? Explain.

(b) Suppose consumers misperceive the damages of a can of coke exploding by $15,000. If there is no liability, what will be the market clearing price and quantity? If there is a strict liability rule, what will be the market clearing price and quantity? What is the difference? Explain.