Question
Consider a perfectly competitive market where the demand for the good is given by Q=704-8p, where Q denotes the quantity demanded at price p. On
Consider a perfectly competitive market where the demand for the good is given by Q=704-8p, where Q denotes the quantity demanded at price p. On the supply side, the industry supply function is given by Q=-11+4p. There is a positive externality due to the production of this good such that the total external benefit is given by EB(Q) = 11 Q.
Suppose the government enacts a tax and/or subsidy policy which results in the efficient amount of the good, Q*, being traded, in a manner that does not have an efficiency effect on any other part of the economy. Determine the efficiency gain as a result of this policy and enter its value below.
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