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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.$3 per unit tax; $12.
b.$6 per unit tax; $6.
c.$3 per unit subsidy; $12.
d.$6 per unit tax; $3.
e.$6 per unit subsidy; $6
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