Suppose it is estimated that for every $1 spent on fatty fast food that government must increase health expenditure by $0.25 to pay for the medical treatment caused by its consumption through the Medicare System. The Medicare System is funded by Australian taxpayers. a. Draw a diagram to illustrate the market for Fatty Fast Food in Tasmania in 2021, showing the:

i. Private MB and MC and Market Equilibrium price (PM) and quantity of (QM).

ii. Social MB and MC and Socially Efficient price (PE) and quantity of (QE).

iii. Dead Weight Loss.

b. Explain why there a Dead Weight Loss?

c. If a Pigouvian Tax could be applied to fatty fast food at what rate should it be set? How would this achieve the Socially Efficient outcome?

Qu.*8 Suppose it is estimated that for every $1 spent on fatty fast food that government must increase health expenditure by $0.25 to pay for the medical treatment caused by its consumption through the Medicare System. The Medicare System is funded by Australian taxpayers. a. Draw a diagram to illustrate the market for Fatty Fast Food in Tasmania in 2021, showing the: i. Private MB and MC and Market Equilibrium price (PM) and quantity of (OM). ii. Social MB and MC and Socially Efficient price (PE) and quantity of (05). iii. Dead Weight Loss. b. Explain why there a Dead Weight Loss? c. If a Pigouvian Tax could be applied to fatty fast food at what rate should it be set? How would this achieve the Socially Efficient outcome? d. If there was no Medicare System would there be any externality that needs correcting