4. Suppose the market for solar panels in Australia is competitive.

a. Using the (market) demand and supply diagram, show the competitive market equilibrium. Label the competitive market equilibrium price and quantity pC and QC, respectively.

Solar panel production reduces the amount of pollution that would have been created by alternative energy sources, like coal.

Using the (market) demand and supply diagram, again, show the efficient equilibrium output. Label the efficient equilibrium output Qe.

Briefly explain how the government can use a corrective tax or subsidy (which?), to get to the efficient output Qe. On the (market) demand and supply diagram, show the price to the buyers, Pb, and the price to the sellers, Ps, as a consequence of this government intervention.

Using the diagram, do welfare analysis to show how much better off or worse off Australian consumers, producers and Australia as whole are from the corrective tax or subsidy from part c) (compared to the competitive market equilibrium). You may find it helpful to assign letters (A, B, C, etc) to refer to areas on your diagram. Be careful about the welfare analysis of Australians as a whole - you will need to think carefully about this.