The market for a good is characterised by demand Q=3000-10P and

supply Q=-600+5P. The marginal damage from production is 30 per unit.

a) Explain graphically how the prices and quantities from a free market differ from

the socially optimal prices and quantities. Indicate and explain the deadweight

loss. No need to draw to scale.

b) Calculate what the prices and quantities in the free market and the resulting

deadweight loss. Calculate the socially efficient prices and quantities.

c) Suppose the government levies a tax of 15 per unit, to be paid by producers.

Draw the tax in the diagram of a). Calculate how this would change prices,

quantities and the deadweight loss compared to a scenario with no tax.