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One method of dealing with a negative externality is to set quotas on the consumption of the good. Suppose that there are only two consumers
One method of dealing with a negative externality is to set quotas on the consumption of the good. Suppose that there are only two consumers of a good with a negative externalitv. Nicole and Andrew. Their willingness-to-pay schedules are given below. Nicole's Andrew's Willingness to willingness to Quantity Suppose that the government wishes to limit consumption of this good to 6 units. and thus sets a consumption quota of 3 units on each consumer. If the price of the good is $15, each consumer will purchase the three units allowed. Instructions: Enter your answer as a whole number. a. Total consumer surplus is: $ |:|. b. The resulting distribution of resources is . c. Consumer surplus (and thus social surplus} at the same output: 0 is maximized at the current equal distribution of goods. @ would increase if Nicole received fewer units and Andrew received more units. O would increase if fewer units were consumed. 0 would increase if Nicole received more units and Andrew received fewer units
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