Question
7. Suppose there is a demand for dumping waste ( ) that looks like . Without any government intervention (i.e., ), the quantity is 12.
7. Suppose there is a demand for dumping waste ( ) that looks like . Without any government intervention (i.e., ), the quantity is 12. Assume that the marginal social cost for dumping one unit of waste is 2 (meaning the existence of negative externality but consumers ignore it!). Now suppose that government decides to charge a fee for dumping waste as . What is net changes in consumer surplus before and after charging fee?
(a) -12
(b) -6
(c) 6
(d) 12
Answer: ______________
8. (Continued from question 7 above) What is the net changes in social surplus before and after charging fee? Focus on 1) consumer surplus and 2) externality costs to the third party, ignoring government revenue from collecting fees
(a) -12
(b) -6
(c) 6
(d) 12
Answer: ______________
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