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Imagine a market where there is a negative externality in consumption. The private inverse demand function for the good is: D_private: P_D = 18 -
Imagine a market where there is a negative externality in consumption. The private inverse demand function for the good is: D_private: P_D = 18 - 2Q_D. The social inverse demand function that incorporates the negative externality is: D_social: P_D = 12 - 2Q_D. The social (and private) inverse supply function is: S_social: P_S = 3 + Q_S. A ______ would eliminate the deadweight loss from the externality, which equals _____. Select one: a. $6 per unit tax; $3. b. $3 per unit tax; $12. c. $6 per unit subsidy; $6. d. $3 per unit subsidy; $12. e. $6 per unit tax; $6
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