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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 P and supply is Q P
Furthermore, suppose that the marginal external damage of this product is $ 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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