Concerned with externalities caused by pollution, Congress is considering a set of measures to

limit pollution caused by widget factories.

i) Plot a supply and demand curve for widgets. Add another line representing the total

social cost of widget production.

ii) Recreate the same curves in a new figure and plot the market if the government sets a

maximum quota for total production at the socially efficient quantity. Label the new

market price(s) and quantity, consumer surplus and producer surplus. In one sentence,

describe who gets widgets and who produces them.

iii) Again, recreate the supply and demand curves from i) in a new figure. Plot the market

if the government introduces a tax that results in the socially efficient quantity. Label

the new market price(s) and quantity, government revenue, consumer surplus and

producer surplus. In one sentence, describe who gets widgets and who produces them.

iv) Now, suppose the government develops new implant technology that can measure the

amount of pollution each person ingests, and can identify the source of each pollutant.

With this new technology, some members of Congress want to give the right to clean

air to everyone; other members of Congress want to give factories the right to pollute,

to promote growth. What does the Coase theorem have to say about the debate? (One

to two sentences maximum)