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The production of natural gas by hydraulic fracturing (fracking) causes a variety of environmental problems including frequent earthquakes. The diagram below represents the market for
The production of natural gas by hydraulic fracturing ("fracking") causes a variety of environmental problems including frequent earthquakes. The diagram below represents the market for natural gas in Kansas. P 15 14 MSC 13 12 11 10 S / MPC O V A D / MPB N 3 4 5 6 7 8 9 10 Q a.) Based on the diagram, how big is the marginal externality from fracking? $. b.)Fill in the welfare table below and then use it to answer the following questions. Free market (no tax) Market w/ optimal tax CS PS externality tax revenue social surplus c.) How much higher is social surplus with the optimal corrective tax compared to without? $ d.) What is the DWL associated with the free market outcome (i.e. when there is no tax)
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