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2. (8 points total) In this market the inverse demand is P = 63 - 3Q and the inverse supply is P = Q. However

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2. (8 points total) In this market the inverse demand is P = 63 - 3Q and the inverse supply is P = Q. However there is an externality produced by production, this costs society EC (Q) = 70. (a) (1 point) If there is no government intervention, what will be the market price and quantity? (b) (points) What is the socially optimal price buyers pay and quantity in this market? (Hint: you can find this by having the producers act as if they are internalizing the cost of the externality.) (e) (points) Find a quota that will make the quantity sold the officient quantity, and also find a tax on producers that will do the same thing in this markoot. (d) ( points) Discuss the advantages and disadvantages of using a tax or quota in this market. You will need to consider the impact of the government having imperfect information. (e) (1 point) What is a third method they could use in this market? Discuss how it could be implemented and it's advantages and disad- vantages. 2. (8 points total) In this market the inverse demand is P = 63 - 3Q and the inverse supply is P = Q. However there is an externality produced by production, this costs society EC (Q) = 70. (a) (1 point) If there is no government intervention, what will be the market price and quantity? (b) (points) What is the socially optimal price buyers pay and quantity in this market? (Hint: you can find this by having the producers act as if they are internalizing the cost of the externality.) (e) (points) Find a quota that will make the quantity sold the officient quantity, and also find a tax on producers that will do the same thing in this markoot. (d) ( points) Discuss the advantages and disadvantages of using a tax or quota in this market. You will need to consider the impact of the government having imperfect information. (e) (1 point) What is a third method they could use in this market? Discuss how it could be implemented and it's advantages and disad- vantages

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