7 - The inverse demand for leather is given by=500.5. The industry supply of leather is determined by its marginal cost:=0.45. Unfortunately, the production of leather causes noxious chemical residues to leach into groundwater supplies. The external marginal cost caused by these residues grows with the amount of output and is measured as=0.05.

a.The social marginal cost would be

• 0.4
• 0.4Q0.45
• 0.45Q0.5
• 0.5Q0.05

b.If the government wanted to reduce the externality to an efficient level, it could impose a quota of_______________. A price of_____________would then prevail in the marketplace.

c.Alternatively, the government could reduce the externality to an efficient level by levying a tax on leather producers of______________. The quantity of leather bought and sold would then be______________, with buyers paying a price of___________

.