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- PRICE U Supply = MPC P3 P2 PI Demand = MSB 92 93 94 95 QUANTITY The graph above shows the perfectly competitive market
- PRICE U Supply = MPC P3 P2 PI Demand = MSB 92 93 94 95 QUANTITY The graph above shows the perfectly competitive market for hard candies in Country Alpha. In the graph the letters correspond to points, not areas. MPC denotes marginal private cost and MSB denotes marginal social benefit. (a) Using the labeling on the graph, identify the area representing each of the following at the market equilibrium. (i) The consumer surplus (ii) The producer surplus (b) Assume that the production of each unit of candy creates a negative externality equal to (P5 P2)- Using the labeling on the graph, identify the socially optimal quantity. (c) Assume that the government imposes a per-unit tax of (P5-P2) to correct for the negative externality. Using the labeling on the graph, identify the area representing each of the following. (i) The consumer surplus (ii) The deadweight loss
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