6. Environmental Policy. Use the diagrams below to answer part a) and b). a) Negative externality (5 marks). Good A emits pollution which imposes an external cost of $3 per unit. (i) In the Good A diagram below draw a social marginal cost curve and indicate the efficient level of output and the deadweight loss associated with the competitive equilibrium. (ii) Show how a $3.00 tax can eliminate the deadweight loss. (iii) Calculate the loss of consumer and producer surplus and show that it is less than the sum of the gain in tax revenue and the external cost saving. b) Positive externality (5 marks). Good B is an electric vehicle which provides an external benefit of $3 per unit. (i) In the Good B diagram below draw the social marginal benefit curve and indicate the efficient level of output and the deadweight loss associated with the competitive equilibrium. (ii) Show how a $3.00 subsidy can eliminate the deadweight loss. (iii) Calculate the sum of the gain in consumer and producer surplus and external benefit and show that it will exceed the cost of the subsidy. P Good A P Good B S 6 A 4 2 4 6 8 10 12 14 2 4 6 8 10 12 14