4 Externalities I Consider the market for private economics tutors in Davis. Assume it is perfectly compet- itive. The market's inverse demand curve is p = 3200 10Q, with @ being the number of students receiving tutor per quarter and p being price per quarter. Economics tutors' private marginal cost curve is MCP = 200 + 10Q). Also assume that, because economics professors curve their classes, when one student improves her grade, it causes every other student to have a lower grade. This is a negative externality. Assume the marginal cost of curving is MCF = 5Q. 4.1 Please find the perfectly competitive equilibrium of this mar- ket. 4.2 Please find the socially optimal equilibrium of this market. 4.3 Please draw this market, including the following curves demand, private marginal cost, and social marginal cost. Also label the following pointsthe perfectly competitive equilib- rium and the socially optimal equilibrium. Also please label axes and where curves cross axes. 4.4 What is deadweight loss in this market? Now suppose that the City of Davis wants to ensure the socially optimal equilibrium in this market by imposing a standard. 4.5 What standard should the City of Davis set? Now suppose that instead of a standard the City of Davis wants to impose a specific tax on this market to ensure the socially optimal equilibrium. 4.6 What specific tax should the city of Davis set? Now suppose that instead of a standard or specific tax the City of Davis wants to ensure the socially optimal equilibrium by assigning property rights to students to not have their grade lowered by other students' performance. 4.7 Why might assigning property rights fail to ensure the socially optimal equilibrium? Please give at least three reasons. 5 Externalities I1 Now assume that one private economics tutor takes over the entire market because the tutor has a lower marginal cost than any other tutor. So now the market has a monopoly. But assume that the demand and marginal cost curves stay the same. 5.1 Please find the un-regulated monopoly equilibrium of this market. 5.2 Please find the socially optimal equilibrium of this market. 5.3 Please draw this market, including the following curves demand, marginal revenue, private marginal cost, and so- cial marginal cost. Also label the following pointsthe un- regulated monopoly equilibrium and the socially optimal equi- librium. Also please label axes and where curves cross axes. 5.4 What is deadweight loss in this market? Now suppose that the City of Davis wants to ensure the socially optimal equilibrium in this market by imposing a standard. 5.5 What standard should the City of Davis set? Now suppose that instead of a standard the City of Davis wants to impose a specific tax on this market to ensure the socially optimal equilibrium. 5.6 What specific tax should the city of Davis set? Now assume that due to a policy change, economics professors start curving more strictly and the negative externality in the market for private economics tutors increases. 5.7 What would the marginal cost of curving need to be for the un-regulated monopoly equilibrium to be the socially optimal equilibrium