Airplane travel (Q) helps people get around, but also produces a lot of air pollution. The demand for airplane travel is given by

P=50-QDor QD=50-P

The aggregate marginal cost to airlines of producing air travel is: MC = 10 + Q

The marginal external cost associated with air travel is equal to: MCext= 10

1. a)Explain intuitively (but briefly!) how this will cause the quantity of air travel (Qm) transacted in the free market to differ from the socially efficient amount of air travel to have produced (Q*).
2. b)Make a graph of demand, private MC, MCext, and total social MC. Identify Qmand Q* on the horizontal axis.

c) Calculate the quantity of air travel (Qm) that will be transacted in this market if no policy is put in place. (Recall P = 50-QD,MC = 10 + Q; MCext = 10)

d) Calculate the socially efficient amount of air travel (Q*).

e)On the graph you made in (b), do the following:

• Use vertical lines|||to shade the area that corresponds to the total social surplus (or total
• social net benefits) that would result if Q* units of air travel were produced and label it A.
• Use horizontal lines=to shade the area that corresponds to the reduction in total social surplus associated with the production of Qminstead of Q* and label it B.