The COVID-19 pandemic is an example of an externality which a ects all economic activities. Consider a particular sector of the economy which has suppliers, demanders, and potential victims of externality. Assume that the demand, which is both the private and social marginal benefit (PMB=SMB), is given by P = 120Q , private marginal costs (PMC) are given by P=Q and that marginal external costs (MEC) are given by P= Q.

(a) Draw a numerically accurate supply and demand diagram for this industry. Find the equilibrium output, Q0, consumer price,P0c and producer price P0p0, that occur when the industry ignores the externality. Now add to your graph the social marginal cost curve,P= M EC+P M C. Suppose the government imposes a Pigouvian tax, t* on output. Find the Pigouvian tax ,t*, output Q, and the consumer and producer prices, Pc and Pprespectively. Show both equilibria on your graph. Find numerical values for all prices, taxes, and quantities and show each on your graph.

b) For both equilibria, identify as areas on your graph (lettered A,B,C,. . . ) and calculate numerically the following: consumers surplus, CS,, producers surplus, PS, total external costs, TEC= (1/2) x MEC x Q, government Pigouvian tax revenues, GTR=t* x Q*, and total welfare, W=CS+PS +GTR- TEC. Identify as areas on your graph and calculate the numerical values for the following: net social welfare, W* at Q*, the dead-weight-loss,DW L0 at Q0, the TEC at Q and the TEC0 at Q0, on your graph.

only answer b