practice question

Question 7: To produce beef, farmers incur the constant marginal cost of 4 per pound. Unfortunately, these direct costs to farmers are not the only cost experienced by society: Society experiences an additional cost of 3 per pound of beef (global warming, pollution of ground water. ...). Say the demand for beef is 800 - p, where p is the price of a pound of beef. 0) Calculate the market equilibrium (Le. private profits. quantities. prices and social costs). (5 Marks) b) PETA lobbies for the imposition of a tax of 2 per pound of beef paid by the farmers. How much beef is sold under the proposed tax? (3 Marks) c) Is the resulting outcome from the tax a Pareto-improvement over the market equilibrium? [3 Marks) d) Has social welfare as measured by total welfare improved or decreased because of the introduction of the tax? (3 Marks) e) Without doing any calculations, explain W which tax rate would maximize social welfare. Under what conditions could the introduction of this tax rate lead to a Pareto-improvement over the case without tax? (7 Marks)