Suppose that the demand for a chemical is given by Q = 100 - 2P, where quantity is measured in pounds. The market supply is given by MC = 5. Assume that the marginal external damage of this product is $3/unit.

a. What is the equilibrium price and quantity of this good without government intervention? (4pts)

b. What is the socially optimal P and Q? What Pigouvian tax or subsidy would generate the socially efficient level of the good? (4pts)