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Pleas help ?!?! Question 12 (Challenging). The market for chewing gum is characterised by the following private supply and demand curves: Supply: P = 2

Pleas help ?!?!

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Question 12 (Challenging). The market for chewing gum is characterised by the following private supply and demand curves: Supply: P = 2 + Q Demand: P = 16 Q In addition to this people enjoy the fresh breath of those they are talking to and value this at $2 per unit of chewing gum consumed. However, the production of chewing gum also leads to a external cost of $4 per unit produced. a) What is the equilibrium price and quantity in the free market? b) What is the amount of deadweight loss? c) What government policy could be implemented to correct for this market inefficiency? Calculate the change in surplus for each party in the market. d) Using either a price floor or price ceiling can you find a way to maximise total social surplus? Calculate the change in surplus for each party in the market. e) Given your findings in c) and d) why is one method preferred over the other? Consider the assumptions that both make and the information the government needs for implementation

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