Question 3: The market for a particular chemical, called Negext is described by the following equations: Qd = 100 5P Qs = 5P a. Find the equilibrium price and quantity. Compute consumer surplus and producer surplus at the market equilibrium. The equilibrium price is given by the equation 100 - 5P = 5P. The solution is P = $10. The equilibrium quantity is the quantity demanded and supplied at the equilibrium price, Q = 100 - 5 x 10 = 50. The first diagram below shows approximateiy the demand and supply curves in the market for Negext (you can check the intercept of demand curve to verify if it is 20). Consumer surplus = (1/2) X (20 - 10} x 50 = $250; producer surplus is also equal to $250; total surplus is $500. Prion of Price at Ilium Manor $20 5W\" W m '20 m $20 MIMI tho tax of $4 Lil-m '15 _ an\". m WW II: $10 312 mm 55 54 Brand W 50 Quantity cl Negewk an 25 M of Nag-Ht Figure 1 Figure 2 Figure 3 b. For each unit of Negext produced, 4 units of pollution are emitted, and each unit of pollution imposes a cost on society of $1. Compute the total cost of pollution when the market is in equilibrium. The total cost of pollution when the market is in equilibrium is 50 x 4 x $1 = $200. (The total surplus decreases by that amount. Thus, total surplus when pollution is accounted for is equal to 500 200 = $300.)