Question
Consider the competitive market for jet skis. The demand and supply for jet skis is given by the following equations: Demand: P= 1000 - 20X
Consider the competitive market for jet skis. The demand and supply for jet skis is given by the following equations:
Demand: P= 1000 - 20X Supply: P =20X
X is the number of jet skis. There is a negative externality associated with using jet skis. The marginal damage function is MD=10X.
a) (3 marks) sketch a graph of the market demand and supply for jet skis. Solve for the equilibrium price and quantity in this market.
b) (2 marks) , graph the marginal damage function. Calculate the total external damage to society when X=30.
c) (3 marks) solve for the efficient quantity of jet skis. Show your work and illustrate in your graph. Enter this answer in
d) (2 marks) Solve for the necessary Pigouvian tax that will ensure the efficient outcome in this market. box.
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