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Inneed of help Consider market for masks. Not everyone values the mask equally: marginal private benet is 100 Q and marginal private costs are given

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Inneed of help

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Consider market for masks. Not everyone values the mask equally: marginal private benet is 100 Q and marginal private costs are given by 20 (per Q). Given that wearing masks will help reduce spread of virus, marginal benet to others is 1130 = 50 (per Q). o 3.. Draw the marginal private benet (MPB) marginal social benet (MSB), marginal private cost (MPG), and marginal social cost (MSG) curves on a graph. labeling clearly the axes and intercepts. Pay close attention to what is on the Xiaxis and yiaxis. _ ' o b. What is the equilibrium amount of masks? What is the eicient level? 0 c. What is the deadweight loss (D'WL) caused by the externality? Shade in the area. of the DWL on the graph from part (a). What is the welfare gain from moving to the efcient level of Q? o d. For which good is a market absent in this case? Government solution: Suppose the government steps in and decides to correct the externality by subsi dizing masks. o e. Suggest a Pigouvian tax that would induce the efcient consumption. What is the optimal tax rate per unit, and how much subsidy is needed? Market solution: The Cease theorem states that \"the eicient outcome should occur regardless of which party has the property rights,\" implying that the market can potentially solve externalities by itself (no need for the government to step inl). o f. Interpret the Cease theorem in the context of this question. What are ways in which the Cease theorem could fail? Give some examples in the context of this question. I Consider a variation to the baseline Solow growth model without population or technological progress. The per-capita production function is given by yt = f(kt) = kta, where 0

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