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Suppose that demand for a product is Q = 1 2 0 0 - 4 P and supply is Q =

Suppose that demand for a product is Q = 1200 - 4P and supply is Q = - 200 + 2P.

Furthermore, suppose that the marginal external damage of this product is $8 per unit.

(a) How many more units of this product will the free market produce than is socially optimal?

(b) Calculate the deadweight loss associated with the externality.

(c) If the government uses a tax to address this externality, what is the optimal amount of tax to

be imposed?

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