Consumption of durian causes bad breath. Suppose that the negative external cost created by durian consumption is equal to RM2/kg of durian. The perfectly competitive equilibrium price of a durian in Malaysia is RM20/kg.

(a)On a diagram, label the equilibrium in the Malaysian market as Q_market. Also show the quantity of durian that would maximise social surplus from the durian market (Q_optimum). Is this equal to the perfectly competitive equilibrium quantity? Fully explain your answer and label the area of deadweight loss (if any). (4 marks)

An economics student in ECW1101 class suggests an alternative policy. She says that if the government sets a price ceiling of RM18/kg of durian then this will maximise social surplus. Is she correct? If she is correct, show the social gain under the student's policy compared to the perfectly competitive equilibrium. If the student is incorrect, show the deadweight loss under her policy.