Question
Farmers who grow apple trees provide a benefit to the beekeepers in Australia. The beekeepers get a good source of nectar to help make more
Farmers who grow apple trees provide a benefit to the beekeepers in Australia. The beekeepers get a good source of nectar to help make more honey. Suppose that the external benefit created by growing apple trees is $0.20 per apple. The perfectly competitive equilibrium price of an apple is $1.
b. An economics student in ECW1101 class suggests an alternative policy. She says that if the government sets a price floor of $1.20 per apple 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.
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started