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3. (If Appendix 3.2 is covered, Negative ExternalitiesA Mathematical Approach.) Suppose the demand curve for an electronic tablet is: P,=200-3Q where Q is the number
3. (If Appendix 3.2 is covered, "Negative ExternalitiesA Mathematical Approach.\") Suppose the demand curve for an electronic tablet is: P,=200-3Q where Q is the number demanded in thousands. The supply curve is: P=20+30Q where, again, Q is measured in thousands. Production of the tablets, considering the materials used, the wastes created, transportation, and packing results in $30 of external costs per tablet. a) Solve for the equilibrium price and quantity in the tablet market without any regula- tion, both algebraically and using a supply-and-demand graph. b) What is total social welfare in the tablet market without any regulation? Solve for consumer surplus, producer surplus, and the externality damage algebraically. (Be careful about the units.) Also show these areas in your graph from part (a). c) If the correct Pigovian tax is instituted, what will be the new equilibrium price and quantity in the tablet market? Solve algebraically and also show this on a graph (the same graph from above or a new graph). What is total social welfare in the tablet market with the correct Pigovian tax? Solve for consumer surplus, producer surplus, the externality damage, and the tax revenues algebraically. Also show these areas in your graph from part (c). d S
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