Assume the following:

demand in the market is characterized by the following demand curve:

Price = 400-2Q

supply in the market is characterized by the following supply curve:

Price = 2Q

there is a negative externality in this market equal to $40 per unit sold.

If there is no policy implemented to address the market failure calculate the following: equilibrium P* and Q*, the consumer surplus, producer surplus, social cost and net social welfare from market exchange.

Assume a tax of $40 per unit sold is imposed on the suppliers in the market (the tax shifts the supply curve). Calculate the following: equilibrium P* and Q*, the consumer surplus, producer surplus, social cost, tax revenue collected and net social welfare from market exchange with the tax.

Calculate is the DWL associated with the market failure?

Draw the demand and supply curves for the problem above and show the DWL in the graph.

Example format

Negative Externality Effects	Supply
	Without Tax P = 2Q	With Tax P =
P*
Q*
Consumer Surplus
Producer Surplus
Social Cost
Tax Collected
Net Social Welfare
DWL