Socially Efficient and Inefficient Markets Part 1 - Check Your Understanding The graph Price shows the marginal benefit (MB) and marginal MC cost (MC) of commercial fishing licenses. Use the $200 graph to answer the questions $180 1. What is the optimal quantity of fishing $160 licenses? Explain. $140 2. Assume that the government issues only 30 $120 licenses. Use numbers from the graph to explain why this is inefficient. $100 $80 3. Calculate the deadweight loss if only 30 $60 licenses are issued. Show your work. $40 4. Assume instead that the government issues 80 $20 MB licenses. Use numbers from the graph to explain SO why this is inefficient 10 20 30 40 50 60 70 80 90 100 Quantity 5. Calculate the deadweight loss if 80 licenses are issued. Show your work. 6. Assume that a new environmental study reveals that commercial fishing boats cause significant water pollution. Environmentalists and economists agree that the additional water pollution can be cleaned up if there is an additional $40 fee for each license. What is the new optimal quantity of fishing licenses? Explain. 7. Factoring in the cost of the water pollution, calculate the deadweight loss if 50 licenses are issued. Show your work. 8. Assume that instead of charging the $40 fee, the licencing agency decides to address the pollution problem by limiting that number of fishing licences to 10. Use numbers from the graph to explain why this is an inefficient outcome. Explain your answer. Part 2 - Stretch Your Thinking - Answer the questions. 9. Explain why it is unlikely that any one commercial fishing company would voluntarily pay to clean up water pollution caused by their boats. 10. Explain why policymakers should examine costs and benefits when addressing environmental concerns rather than adopt policies designed to stop pollution. Fully explain your reasoning