Answered step by step
Verified Expert Solution
Question
1 Approved Answer
Snidely Whiplash owns a car factory. His supply curve for producing cars is given by QS = P/100 . The demand curve for cars is
Snidely Whiplash owns a car factory. His supply curve for producing cars is given by QS = P/100 . The demand curve for cars is given by QD = 1, 000 P/25 . His factory pollutes the local river, such that the local community is made $5,000 worse off for each car he produces. If that Pigouvian tax were levied, what would be the price(s) in the market for Snidely's cars? How large would consumer surplus, producer surplus, external costs, and tax revenue be? How large is the deadweight loss due to the externality? (g) (2 points) Imagine a study discovers that pollution is even worse than we thought, and so the local community is actually made worse off by $30,000 per car produced. In that case, what is the efficient quantity? (h) (2 points) If the government imposed the Pigouvian tax that would produce the efficient quantity (given an externality of $30,000 per car), how large would consumer surplus, producer surplus, external costs, and tax revenue be
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started