Question
Refer to the diagram below. This diagram represents a perfectly competitive market for a generic product, with Price and Quantity provided, as well as marginal
Refer to the diagram below. This diagram represents a perfectly competitive market for a generic product, with Price and Quantity provided, as well as marginal social benefit, marginal private benefit, marginal social cost and marginal private cost.
a. What type of externality is seen in the diagram? (1 Mark)
b. Identify the market equilibrium price and quantity. (1 Mark)
c. Identify the area of deadweight loss. (1 Mark)
d. Assume a subsidy is provided by the government to correct a market failure. What value of per-unit subsidy would achieve the socially optimum quantity? (1 Mark)
e. Assume government places a price floor of $8. How many units will consumers and producers exchange at price floor?
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