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Question 1: Suppose the Australian market for uranium ore concentrate (UsO:) is characterized as follows: Market Supply: P = 10 + 1.250 Market Demand: P
Question 1: Suppose the Australian market for uranium ore concentrate (UsO:) is characterized as follows: Market Supply: P = 10 + 1.250 Market Demand: P = 106 - 1.75Q where P is measured in Australian dollars per pound (1b) of uranium ore concentrate and @ is measured in thousands of lbs of uranium ore concentrate per day (i.e. to solve for P when Q is 40,000 lbs/day, for example, substitute Q = 40 into the equation, not Q = 40,000). Using this information, answer the following questions. Part (a) What is the market equilibrium price and quantity of uranium ore concentrate? Show this graphically, making sure to label equilibrium price and quantity and important intercepts. [Note: your graph does not need to be to scale.] Part (b) Suppose that after thorough analysis of the Australian market for uranium ore concen- trate, the government concludes that while market demand fully captures the marginal benefits of uranium ore concentrate to society, there are additional costs, such as increased risk of can- cer. Specifically, the government finds that the marginal external cost (MEC) of uranium mining is captured by the following equation: MEC = Q. Given this information, what equation de- scribes Marginal Social Benefits (MSB)? What equation describes Marginal Social Costs (MSC)? Part (c) Given the equations for MSC and MSB that you found in Question 2, determine the socially optimal equilibrium price and quantity of uranium ore concentrate. Plot this equilibrium on your graph from Part (a). Part (d) What is the value of Total Surplus (a measure of Social Welfare) when the market equilibrium prevails? What is the value of Total Surplus when the socially optimal equilibrium prevails? Which is larger? By how much? [Note: Keep in mind that Q is measured in thousands.] Part (e) Why do markets fail when externalities are present? Explain your
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