Question
Suppose demand is Q D = 16 - P supply is Q S = P . There is a constant positive externality of $4 per
- Suppose demand is QD = 16 - P supply is QS = P. There is a constant positive externality of $4 per unit (Marginal External Benefit, MEB = $4).
a. Draw the graph of the MC, MB and MSB curves. Identify the level of the intercepts.
b. Calculate total surplus if the market is at the point where MC=MB.
c. What is the DWL loss at this point (MC=MB)? Identify on your graph.
d. Calculate total surplus if the market is at the point where MC=MSB.
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Economics
Authors: R. Glenn Hubbard
6th edition
978-0134797731, 134797736, 978-0134106243
