Question 1: The teenagers of Good Times Island love to have bon fires on the beach every Sat- urday night. They especially love to burn rubber tyres because of the thick black smoke the tyres produce. The parents of Good Times Island, however, hate these fires. The smell of the burning tyres makes them sick. There are two companies that supply rubber tyres: Greatyear (S1) and Firepebble ($2). Their supply functions are given by (1) Qs1 = 1.75P and (2) Qs2 = 2.25P, where Q is the number of tyres sold per week. There are two neighboring villages on the Island. Their demand functions are given by (1) QD1 = 75 -3P, and (2) Qp2 = 25 - P. Assume that rubber tyres have no other purpose (i.e. they are only good for bon fires and cannot be used for transportation) and that rubber tyres are neither imported nor exported so that the island's demand for tyres must be met by the two suppliers. Also assume that the tyre suppliers are located in between the two villages so islanders can easily purchase tyres from either supplier and that bon fire smoke easily travels back and forth between the two villages. Using this infor- mation, answer the following questions.Part (f) The parents of Good Times Island lobby the government to conduct a thorough inves- tigation of the damages that can ensue from burning rubber tyres. The government determines that the marginal external cost of tyre burning that parents experience by having to breathe the black smoke is given by MECparents = 0.40. The government also determines that there are costs to the environment. The smoke decreases visibility, leaves residue in streams, and is threatening the island's bird population. The government estimates that the marginal external cost of tyre burning to the environment is given by MECenvironment = 0.350. Given this infor- mation, derive the equation for marginal social benefits (MSB) and the equation for marginal social costs (MSC).Part (g) lGiven your answer to Part [I]. what is the socially optimal quantity of rubber tyres? lGraphically illustrate this equilibrium. including MSE. 35-1343. market supply. and market de- mand on the same graph. Again. while your graph need not be drawn to scale. be sure to label all curves and numerically label all intercepts and equilibrium values. Part {h} 1|i"r'h.at is the value of Total Surplus {i.e. $ocial 1viir'elfarel under the market equilibrium? What is the value of Total Surplus under the socially optimal equilibrium? 1qiir'hich is larger? 1|nilr'hy is this? Part [i] The government realizes that. without intervention. the island is burning too many tyres and that the community would be better off if fewer tyres were brn'ned. They decide to charge tyre producers a flat perunit output tax on each tyre produced [by flat. I mean the same tax for each unit produced}. What tax will induce the market to produce the socially optimal amount of tyres? Illustrate the effect this tax will have on Market Supply. Market Demand. and the Market Equilibrium. Part {j} Suppose instead that the government decides to charge islanders a at per-omit con- sumption tax on each tyre burned. 113"."lrat tax will induce the market to consume {burn} the socially optimal amormt of tyres? Illustrate the e'I'Iect this tax will have on Market Supply, Market Demand. and the Market Equilibrium. Part [k] In the scenario in Part {i}. what price nulst teenagers pay in order to purchase a rub ber tyre? 'ir'rat must they pay in Part ]? Ho's.r do these prices compare? Explain your ndings. Part [1] tiuppose during the investigation that the government also determined that the pro- duction of rubber tyres generated pollution. In this case. would the socially optimal quantity of tyres be greater than. equal to, or less than the quantity you found in Part {g} or do you not have enough information to answer this question? 'i-'L-buld the optimal production tax be greater than. equal to. or less than than the value you tormd in Part {ijl or do you not have enough information to answer this question? Part (In) Under what conditions would the socially optimal quantity of tyres be zero